Which of the following is included in the purpose of insurance?

The purpose of insurance fundamentally revolves around managing risk and providing financial protection against unforeseen events. Guarding against the unknown is central to this concept, as insurance is designed to offer security against potential losses that individuals and businesses cannot predict.

By transferring the financial burden of losses to an insurance company, policyholders can mitigate the impact of events such as accidents, natural disasters, or health issues. Insurance does not eliminate risks entirely; rather, it provides a means to manage the potential consequences of those risks, thereby offering peace of mind to individuals and allowing them to plan for uncertainties.

The other options do not align with the fundamental purpose of insurance. For instance, higher federal taxes or increased individual liability are aspects that could arise in different contexts but are not directly related to the protective purpose of insurance. Similarly, while insurance aims to reduce the financial impact of risks, it does not eliminate all risks but rather helps individuals prepare for and cope with them through financial mechanisms.