What is the primary purpose of insurance in personal finance?

The primary purpose of insurance in personal finance is to protect against financial loss or risk. This can include a variety of unforeseen events such as accidents, illnesses, property damage, or liability claims. By having insurance coverage, individuals can mitigate the financial burden that these risks can impose. For instance, health insurance can cover medical expenses in case of illness, while homeowners insurance can provide financial protection against damages to property.

While enhancing investment returns, saving for retirement, and increasing buying power are important financial objectives, they do not accurately capture the fundamental role that insurance plays in an individual's financial strategy. Insurance is primarily there to provide a safety net, ensuring that individuals and families can recover from losses and maintain financial stability in the face of life's uncertainties.