What typically protects individuals against financial loss due to unexpected events?

Having insurance serves as a crucial protection against financial loss caused by unexpected events. Insurance works by transferring the risk of financial loss from the individual to the insurance company. In exchange for regular premium payments, the insurance provider agrees to cover certain types of losses, such as those resulting from accidents, theft, natural disasters, or medical emergencies. This way, if an unexpected event occurs, individuals can receive financial compensation, which helps mitigate the impact on their finances and provides greater peace of mind.

While investing in stocks can potentially yield high returns, it does not offer protection against specific financial losses; instead, it involves taking on more risk. Opening a savings account is a good strategy for managing liquidity and saving for future goals, but it does not shield individuals from unexpected financial burdens. Utilizing credit cards offers convenience and can help manage cash flow, but it also introduces debt and interest charges that can worsen financial situations if not managed carefully. Thus, insurance stands out as the most direct means of safeguarding against unanticipated expenses and losses.