Texas All Lines Adjuster Practice Test

What is the primary function of an insurance company?

1. To maintain funds for investors

2. To sell insurance policies

3. To provide government regulations

4. To evaluate risk for policyholders

The correct answer is: To sell insurance policies

The primary function of an insurance company centers around managing risk through the sale of insurance policies. When insurance companies sell policies, they are essentially entering into a contract with the policyholder, agreeing to provide financial protection against specific risks in exchange for premium payments. This core activity allows individuals and businesses to mitigate potential financial losses from unforeseen events such as accidents, natural disasters, or health-related issues. By focusing on selling insurance policies, companies can gather a pool of premiums that are then used to pay claims, cover operational costs, and invest. This process of transferring risk from the individual to the insurer is fundamental to the operation of insurance and is what distinguishes it from other financial services like investment management or regulatory compliance.