Alabama Property and Casualty Practice Exam

What is the primary purpose of a liability insurance policy?

1. To protect against property damage only

2. To protect the insured from financial loss due to legal responsibilities

3. To cover personal injuries exclusively

4. To provide health insurance benefits

The correct answer is: To protect the insured from financial loss due to legal responsibilities

The primary purpose of a liability insurance policy is to protect the insured from financial loss due to legal responsibilities. Liability insurance provides coverage when the insured is found legally liable for causing harm to someone else or damaging their property. This can include legal defense costs, settlements, or judgments resulting from lawsuits, ensuring that the financial burden does not fall solely on the insured. This type of insurance is essential for individuals and businesses, as it offers peace of mind knowing they have financial protection against claims that could arise from accidents or negligence. It is designed to help cover costs associated with legal claims, which can be quite significant depending on the situation. Other options, while they touch upon aspects of insurance, do not capture the comprehensive nature of liability insurance. For instance, protecting against property damage alone or covering personal injuries exclusively do not encompass the broader scope of legal responsibilities that liability insurance addresses. Additionally, providing health insurance benefits pertains to a different category of coverage and is not related to liability exposure.