That is exactly what it is. Insurance is not some mumbo jumbo legal definition. Insurance is an individuals cost-benefit analysis of their situation. Lets say I have made 100x on my BTC. Moving say 10% of my stash to a custodian protects a portion of my wealth from an attack / mishap with my own seed phrase storage. If the custodian goes bust, meh. I still got my 90% of the best performing asset. And it helps me sleep better, so less stress, and so less likely to fumble the seed phrase...

Diversification of stash location. Not a bad choice TBH. But corporations are not the only option. You can custody part of your stack with trusted family members. You can also custody some of their stack in return. Ensuring each other against catastrophe without involving strangers.