What is the main purpose of insurance coverage?

The main purpose of insurance coverage is to manage risk. Insurance is designed to provide financial protection against potential losses, whether due to accidents, health issues, property damage, or other unforeseen events. By paying premiums, individuals or businesses transfer specific risks to the insurance company, which in turn agrees to compensate them for covered losses. This helps mitigate the financial impact of those risks, allowing people and organizations to operate with greater peace of mind.

Creating wealth, eliminating risk, and avoiding payments do not reflect the fundamental role of insurance. While it can assist in protecting assets that may contribute to wealth accumulation, its core function is not to generate wealth. Insurance cannot eliminate risk entirely; it can only lessen the financial consequences associated with those risks. Lastly, the goal of insurance is not to avoid payments but to provide a safety net in case of loss, thereby making risk management a more feasible endeavor.