What is the primary concept of insurance?

The primary concept of insurance centers around spreading risk among individuals. This fundamental principle is crucial to how insurance functions; it allows individuals to come together to pool their risks and protect themselves against potential financial losses. By sharing the risks with a larger group, each individual can mitigate the impact of a loss, making insurance a more manageable and equitable solution.

When people pay premiums into an insurance pool, that collective fund is used to provide financial assistance to those who experience covered losses. This not only helps to individual policyholders but also stabilizes the overall insurance system, as losses are absorbed by the pooled resources rather than falling entirely on the shoulders of a single individual.

Other options present concepts that do not align with the core purpose of insurance. For instance, maximizing profit for the insurer is more of a business goal rather than an insurance principle, which fundamentally aims to provide security and financial protection. Promoting individual risk-taking contradicts the ethos of insurance, which is about managing risk rather than encouraging it. Minimizing the number of policyholders does not align with the principle of distributing and managing risk, as having more policyholders actually enhances the ability to share risk effectively.