What is the primary purpose of an insurance company's guarantee fund?

The primary purpose of an insurance company's guarantee fund is to provide insurance for insurance. Guarantee funds are established by states to protect policyholders in the event that an insurance company becomes insolvent or unable to meet its financial obligations. This fund ensures that claims made by policyholders are paid even if the insurer cannot fulfill its commitments due to financial issues.

This function is crucial as it maintains public confidence in the insurance system by ensuring that consumers are protected against the risk of loss from an insurer's potential failure. The guarantee fund acts as a backstop, allowing the state to take over the responsibilities of the failed insurer and distribute claims payments to affected policyholders.

While other choices might relate to general insurance practices, they do not capture the specific protective role of guarantee funds designed to support policyholders in the event of insurer insolvency.