What is the primary purpose of liability insurance?

The primary purpose of liability insurance is to protect against legal claims. This type of insurance provides coverage for individuals or businesses in the event they become legally responsible for an injury or damage to another person or their property. It is designed to cover legal defense costs, settlements, and judgments against the insured when they are found liable.

Liability insurance is crucial for mitigating financial risk from lawsuits, as it helps individuals or entities avoid large out-of-pocket expenses that could arise from legal action. This protection allows policyholders to have peace of mind, knowing they have financial backing in case of unforeseen incidents leading to claims.

Other options, while related to aspects of insurance, do not capture the central intent of liability insurance. For instance, covering property damage is typically linked to property insurance, while ensuring payment for medical expenses relates more to health insurance or specific medical coverage within a liability policy. Funding replacement costs parallels more closely with property or casualty insurance, aimed at restoring a lost or damaged asset rather than protecting against liabilities incurred from judgments or legal actions.