Florida Insurance Licensing Practice Exam 2025 - Free Insurance Licensing Practice Questions and Study Guide

The primary purpose of insurance is to provide financial protection against losses. Insurance serves as a risk management tool that helps individuals and businesses safeguard themselves from unforeseen events that could lead to financial setbacks. By paying premiums, policyholders transfer the financial risk of certain losses to the insurance company. In the event of a covered loss, the insurance company compensates the policyholder, thus mitigating the financial burden that the individual or business would otherwise face.

This concept is foundational to the insurance industry, as it encourages people to protect their assets, health, and livelihood by ensuring that they have the means to recover from potential crises. It differs significantly from the other options, which do not align with the core function of insurance. While increasing profits for insurance companies is a byproduct of their operations—achieved through careful underwriting and management—it's not the main goal of insurance itself. Similarly, managing personal investments and providing loans for business operations are outside the typical functions of insurance, which are focused primarily on risk transfer and financial protection.