Which statement best describes the purpose of insurance?

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Insurance exists to share and limit the financial impact of uncertain events by transferring risk to a larger pool of policyholders. When many people pay premiums, that money forms a fund to pay for losses faced by those who experience a covered event, such as a medical emergency or damage to property. This helps individuals and families access care and recover financially after something costly happens.

It’s important to know that insurance does not guarantee all medical costs. Policies have deductibles, copays, limits, and exclusions, so not every expense is covered. It also does not remove the risk itself—the chance of a loss still exists, but the financial burden is spread and usually reduced. And it isn’t reserved for big corporations; individuals and households use insurance to protect against health, auto, home, and other risks.