What does the term "liability insurance" primarily cover?

Liability insurance is designed to protect the policyholder against claims resulting from injuries and damage to other people or their property. The primary coverage of liability insurance includes legal costs associated with claims brought against the insured, meaning it helps cover the expenses incurred during legal defense and any settlements or judgments that arise from such claims.

This type of insurance does not cover medical expenses for injuries to the policyholder or replacement costs for stolen property, as those are more aligned with personal health or property insurance. Additionally, life insurance payouts to dependents is a completely separate type of insurance, meant for providing financial support to beneficiaries after the insured's death. Thus, the correct understanding of liability insurance prominently focuses on the legal costs and liabilities arising from claims made against the insured.