What is the primary function of insurance?

The primary function of insurance is to mitigate financial loss from unforeseen events. Insurance serves as a risk management tool that provides protection for individuals and businesses by transferring the risk of financial loss to an insurance company. When an unexpected event occurs—such as an accident, natural disaster, or health issue—the insured can receive compensation, which helps to alleviate the financial burden that might arise from such incidents. This concept is rooted in the idea of spreading risk among a large group of policyholders, allowing individuals and businesses to manage potential losses by paying a relatively small premium.

The other options, while related to certain aspects of insurance, do not capture its primary function as effectively. Proving liability in accidents is a specific function related primarily to liability insurance, rather than the overall purpose of insurance itself. Increasing the value of property is not an inherent function of insurance, as insurance does not enhance value but rather provides financial protection. Lastly, ensuring legal compliance may be important in certain insurance contexts, such as mandatory auto or workers' compensation insurance, but it is not the fundamental purpose of insurance overall.