What is the primary purpose of 'liability insurance'?

The primary purpose of liability insurance is to protect individuals or businesses against claims resulting from injuries and damage to others. This type of insurance is essential in scenarios where the policyholder may be held legally responsible for causing harm, whether through negligence or other actions. For instance, if a person causes an accident that injures another individual or damages their property, liability insurance would cover the costs associated with legal fees, medical expenses, and any settlements or judgments rendered against the insured.

This form of coverage is crucial for safeguarding the policyholder's financial stability, as costs stemming from liability claims can be significant and life-altering. By having liability insurance in place, individuals and businesses can operate with greater peace of mind, knowing they have financial protection in case of unexpected incidents.

Other insurance types, such as health insurance or life insurance, serve different specific purposes related to health care costs and death benefits, but they do not encompass the protection against third-party claims that liability insurance provides. Therefore, the clarity of the intent behind each insurance type helps delineate why this answer is the correct one.