What is the primary purpose of an insurance policy?

The primary purpose of an insurance policy is to provide financial protection against unexpected losses. Insurance policies are designed to mitigate the financial impact that can arise from unforeseen events such as accidents, natural disasters, theft, or health issues. By transferring the risk of these potential losses to an insurance company, policyholders can safeguard their finances and have peace of mind knowing that they will receive assistance in covering costs associated with covered incidents.

This function is central to the insurance industry's role in society, allowing individuals and businesses to manage risk effectively. In contrast, the other options represent misconceptions or secondary aspects of insurance that do not align with its core function. For example, while insurance companies may seek to be profitable, that is not the main intention of a policy. Rather, the focus is on providing the needed help when losses occur. Similarly, claims resolution processes aim to be fair and based on the terms of the policy, rather than skewed in favor of the insurer. Lastly, insurance policies are indeed legal contracts, but they are meant to protect the rights of policyholders by stipulating what is covered and ensuring accountability rather than restricting their rights.