What do individuals typically use to transfer their risk of loss to a larger group?

Individuals typically use insurance to transfer their risk of loss to a larger group. Insurance operates on the principle of risk pooling, where many individuals pay premiums into a shared fund. This collective fund is then used to compensate any member of the group who experiences a loss. By pooling resources, individuals can mitigate the financial impact of unforeseen events like accidents, property damage, or health issues, which would otherwise be difficult to manage individually.

In contrast, savings funds are primarily used as a personal safety net and do not spread risk among a group. Investments are meant to grow wealth over time and do not inherently provide protection against loss in the same way insurance does. Bonds are financial instruments that represent a loan from the investor to an issuer, and while they might offer some financial returns, they do not offer the risk transfer function that insurance provides. Thus, insurance is the appropriate mechanism for transferring risk to a larger collective.