What is the main purpose of an insurance policy?

The main purpose of an insurance policy is to outline the terms and conditions of coverage. This document serves as a legal contract between the insurer and the insured, specifying what risks are covered, the extent of coverage, exclusions, and the obligations of both parties. By clearly delineating these terms, the policy ensures that both the insurer and the policyholder have a shared understanding of the agreement, which helps prevent disputes and misunderstandings in the event of a claim. It also delineates the rights and responsibilities pertinent to both parties, making it a crucial element in the insurance transaction.

While providing detailed policyholder information and setting standards for insurers are important aspects of the regulatory framework surrounding insurance, they do not capture the primary function of the policy itself. Similarly, while an insurance advisor might offer financial advice, that is not the primary aim of an insurance policy, which focuses more on coverage and risk management.