What is the primary purpose of liability insurance?

Liability insurance is fundamentally designed to provide coverage for legal claims or lawsuits that may arise from negligence or misconduct that causes injury or damage to another person or their property. When an individual or business is held responsible for such claims, liability insurance plays a crucial role in covering the costs associated with legal defense, settlements, or judgments awarded in court.

This type of insurance is essential in safeguarding assets and financial stability, as legal claims can often result in significant expenses. By having liability coverage, the insured party alleviates the potential financial burden associated with lawsuits, which can include not only payment of damages but also the costs of legal representation.

While other forms of insurance, such as property insurance, cover specific types of damage or loss, the primary function of liability insurance revolves around protecting the policyholder from the financial implications of legal obligations resulting from claims made against them. Therefore, the answer is properly identified as focusing on this pivotal role in risk management.