Question

The purpose of insurance is to ________?

1) avoid vehicle accidents
2) provide extra costs to employers
3) protect against financial loss
4) guarantee against medical problems

Answer 1

The purpose of insurance is to protect against financial loss. Insurance is a method that households and firms use to prevent any single event from having a significant detrimental financial effect. For example, car insurance pays if your car is in an automobile accident, and health insurance pays when you receive medical care. Option 3 is correct.

Step-by-step explanation:

The purpose of insurance is to protect against financial loss. Insurance is a method that households and firms use to prevent any single event from having a significant detrimental financial effect. Generally, households or firms with insurance make regular payments, called premiums, to an insurance entity. The insurance company then remunerates a group member who suffers significant financial damage from an event covered by the policy. For example, car insurance pays if your car is in an automobile accident, and health insurance pays when you receive medical care.

This could be in the form of health insurance payouts for medical care, reimbursement from car insurance after an accident, or life insurance providing for a family after a death. The preventative nature of insurance helps to maintain financial stability despite unexpected events.