What financial tool provides protection against potential financial loss?

Insurance serves as a crucial financial tool designed to provide protection against potential financial loss. It operates on the principle of risk management, where individuals or businesses pay a premium to an insurance company in exchange for coverage against various risks, such as property damage, health issues, or liability claims. In the event of a covered loss, the insurance company compensates the policyholder, thus mitigating the financial impact and ensuring that unexpected events do not deplete one's savings or assets.

The other choices do not serve the same protective function as insurance. Investments involve putting money into assets with the expectation of generating profit, but they carry the risk of loss. Loans are borrowed funds that must be repaid, often with interest, and do not offer protection against financial loss; rather, they can increase financial liability. Bonds are a form of investment where an investor lends money to an issuer (such as a government or corporation) with the expectation of receiving interest and the return of principal; while they can provide returns, they do not offer protection against losses in the same way insurance does.