Alberta General Insurance Level 1 Practice Exam

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What is the primary function of insurance?

  1. To eliminate risk

  2. To share and spread risk

  3. To invest premiums

  4. To provide employment

The correct answer is: To share and spread risk

The primary function of insurance is to share and spread risk among a large group of individuals. This helps to protect individuals and businesses from financial losses that may occur due to unexpected events. Option A ("To eliminate risk") is incorrect because insurance does not completely eliminate risk, but rather helps to mitigate it. Option C ("To invest premiums") is also incorrect because while insurance companies may invest premiums, it is not their primary function. Option D ("To provide employment") is incorrect because while employment may be a secondary outcome of insurance companies, it is not their main purpose.

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