Final answer:
Insurance is a financial safeguard for individuals and firms against significant losses, where they pay premiums to cover potential future damages or losses and receive compensation when those insured events occur.
Step-by-step explanation:
The purpose of insurance for the insured is to provide financial protection against potential future losses or damages. By paying regular premiums, policyholders contribute to a collective pool managed by the insurance company. In return, the insurance firm assesses the risk of events and sets premiums accordingly. Should an insured individual or firm experience a covered significant financial loss, such as medical expenses, automobile accidents, or property damage, they are eligible to receive compensation. Furthermore, life insurance policies support survivors financially after the policyholder's death. It is important to note that insurance can sometimes lead to a moral hazard, where individuals may take greater risks because they have insurance coverage.