What can help reduce an individual's personal risk of loss?

Insurance is a key tool used to reduce an individual's personal risk of loss. By purchasing insurance, individuals can transfer the financial burden of potential losses—such as those from accidents, illnesses, property damage, or liability—to the insurance company. This means that instead of having to bear the entire cost of a loss independently, individuals can receive compensation based on their policy terms, thus providing financial security and peace of mind.

While investment portfolios, emergency savings funds, and diversified income streams are all important components of financial planning, they serve different purposes. Investment portfolios are designed for growth over time and may carry their own risks, while emergency savings funds provide a safety net for unexpected expenses, but they do not specifically mitigate risks against significant losses such as those covered by insurance. Diversified income streams can help ensure financial stability by providing multiple sources of income, but they do not directly address the risk of loss in the same way that insurance does.