What is the primary purpose of liability insurance?

The primary purpose of liability insurance is to protect against financial loss resulting from lawsuits or claims. This type of insurance is designed to cover legal costs, settlement costs, and any awarded damages that a policyholder may be obligated to pay as a result of claims made against them. Liability insurance is important because it provides financial security and assurance that individuals and businesses can defend themselves against legal action without suffering severe financial consequences. For instance, if a business is sued for negligence, liability insurance will help cover the costs associated with that lawsuit, allowing the business to continue operations without crippling financial strain.

When considering the other options, it is important to note that liability insurance is not limited to just property damage, nor does it provide health benefits or cover loss of income, which are purposes addressed by different types of insurance, such as health insurance or income replacement policies. Thus, the option focused on protecting against financial loss from lawsuits encapsulates the fundamental role of liability insurance.