Which financial product is typically used to protect against risk of loss?

Insurance is specifically designed to provide financial protection against various risks of loss, which can include health issues, property damage, liability claims, and more. When a person or business purchases insurance, they transfer the burden of risk to the insurance company, which will provide compensation for specified losses in the event that they occur.

This mechanism is crucial for individuals and businesses alike, as it helps mitigate the financial impact of unforeseen events. For example, if a homeowner experiences damage to their property due to a fire, their homeowner's insurance policy would cover the costs of repairs, thereby preventing significant out-of-pocket expenses that could likely result in financial hardship.

In contrast, stocks, bonds, and real estate are investment products that may carry their own risks and potential for loss, but they do not inherently provide protection against loss in the same way insurance does. Stocks can fluctuate in value, bonds can be affected by interest rate changes, and real estate can lose value in a downturn—all representing financial losses rather than protections against them.