Which of the following is a primary function of insurance?

The primary function of insurance is to pool risk among a group. This concept is central to the insurance industry, as it allows individuals and businesses to share the financial burden of unforeseen losses. By pooling together the premiums paid by many policyholders, insurers can create a reserve of funds that is used to pay for the claims of those who suffer losses. This risk-sharing mechanism enhances financial security and provides peace of mind to policyholders, knowing that they are protected against significant financial setbacks, which they might not be able to handle on their own.

The other options do not accurately reflect the fundamental purpose of insurance. While providing investment opportunities may be a secondary feature of some insurance products, it is not the main function of insurance as an industry. Generating profits is a goal for insurers, but it is the pooling of risk that facilitates this, rather than being an end in itself. Encouraging unhealthy risk-taking behaviors contradicts the very essence of insurance, which is designed to promote responsible management of risks and financial protection rather than reckless behavior. Therefore, pooling risk remains the cornerstone of what insurance is fundamentally designed to accomplish.