What is the purpose of liability insurance?

Liability insurance is specifically designed to provide coverage for situations in which an individual or business is legally held responsible for causing injury or property damage to another party. This type of insurance is crucial because it ensures that the policyholder can meet legal obligations that arise from claims or lawsuits related to negligence, such as medical expenses for injuries caused to others, costs associated with property damage, and legal defense costs if a lawsuit arises.

This focus on legal responsibility differentiates it from other types of insurance. For instance, property damage from natural disasters would typically fall under property insurance rather than liability insurance, which is meant to protect against responsibilities to third parties rather than losses to one's own property. Similarly, coverage for theft addresses different risks and would be found under property insurance products that cater specifically to loss of personal or business property.

In the context of the remaining options, financial assistance for investment losses is irrelevant to liability coverage, as investment risks and losses are not part of the liability framework. Thus, the purpose of liability insurance is clearly outlined by its focus on legal responsibility for injury or damage to others, making it an essential component of personal and business risk management.