What is the primary function of liability insurance?

The primary function of liability insurance is to cover the costs of damages to third parties. This type of insurance is designed to protect individuals and businesses from legal liabilities that may arise from injuries or damages caused to others. For instance, if a policyholder is found to be legally responsible for an accident that injures someone else or damages their property, liability insurance helps cover the costs associated with those claims, such as medical expenses and legal fees. This protective measure ensures that the insured can meet their financial obligations resulting from such liabilities, safeguarding both their financial stability and their reputation.

In contrast, the other options focus on different aspects of insurance. For example, protecting the policyholder's property is more in line with property insurance. Ensuring the full replacement of lost items typically pertains to personal property or renters insurance. Lastly, coverage for natural disasters usually involves specialized policies like homeowners insurance or flood insurance, rather than liability insurance. Thus, liability insurance is specifically tailored to address the financial repercussions of claims made by other parties, affirming its primary function.