Which of the following best describes the primary purpose of risk pooling in life insurance?

Question: Which of the following best describes the primary purpose of risk pooling in life insurance?

Answer options:

• To allow insurers to invest premiums for profit ✅ To spread the financial risk of loss from an adverse event among a large group of policyholders
• To ensure that only low-risk individuals obtain insurance coverage
• To provide a guaranteed return on investment for policyholders

Correct answer: To spread the financial risk of loss from an adverse event among a large group of policyholders

Explanation: Risk pooling is the fundamental principle where a large group of individuals contributes to a common fund, and this fund is then used to pay out claims for those who experience an insured loss, thus sharing and mitigating individual risks.