Which of the following is an essential function of insurance?

Providing financial protection against unforeseen losses is an essential function of insurance because it serves the primary purpose of transferring risk from an individual or entity to an insurance company. This function ensures that in the event of a loss due to unexpected circumstances—such as accidents, natural disasters, or theft—the insured can recover financial support to mitigate the financial impact.

Insurance acts as a safety net, providing policyholders with peace of mind knowing they have a mechanism to address financial hardships that arise from unforeseen events. This protective aspect is foundational to the operation of the insurance industry, fostering stability in personal and business finances.

While predicting future losses, assessing the worth of insured property, and eliminating risks are related to the functions of insurance, they do not embody its core purpose as effectively as providing financial protection against unforeseen losses. These other activities are important for the management of insurance policies but do not capture the fundamental role that insurance plays in risk management.