When a company takes out insurance to cover its activities, one of the main benefits which arises is that?

When a company takes out insurance to cover its activities, one of the main benefits is that capital is freed up within the business. This occurs because the company can transfer the financial risk associated with potential losses to the insurance provider. Rather than holding large reserves of capital to cover unexpected events—such as accidents or significant losses—the company can use those funds in other areas of the business, such as investment, expansion, or daily operations.

This risk transfer not only helps in safeguarding the company's financial stability but also allows for more efficient use of available resources. Companies can allocate capital more effectively, confident that they are protected against certain risks, thereby improving overall liquidity and operational flexibility. This aspect of risk management is a fundamental reason why businesses engage in purchasing insurance.

In contrast, conducting a valuation of assets and preparing a disaster recovery plan, while important, do not directly address the financial flexibility gained through insurance. Furthermore, claiming that the profitability of the company is guaranteed is misleading; insurance cannot guarantee profit but rather protects against financial loss from specific risks.