What is the primary purpose of liability insurance?

Liability insurance primarily serves to protect an individual or business from the financial consequences of claims made by others due to injuries or damage they cause. This type of insurance is crucial as it helps cover legal expenses, medical costs, and any settlements or judgments that may arise from lawsuits related to incidents for which the insured is found responsible.

For example, if someone is injured on your property or if you accidentally cause damage to someone else's property, liability insurance provides the necessary coverage to address these claims. It ensures that you are not left to shoulder these potentially significant financial burdens out-of-pocket.

The other choices focus on specific aspects of insurance that do not align with the core function of liability insurance. Covering property damage from natural disasters relates more to property insurance. Compensating for lost wages is connected to disability or income protection insurance rather than liability. Insuring personal belongings at their full replacement cost pertains to personal property insurance, not liability coverage. Thus, the defining characteristic of liability insurance is its role in safeguarding against claims from injuries and damage to others.