South Carolina Personal Lines Practice Exam

What is the primary function of liability insurance?

1. To cover physical damages to property

2. To protect against financial loss from lawsuits

3. To insure personal belongings

4. To provide coverage for natural disasters

The correct answer is: To protect against financial loss from lawsuits

Liability insurance primarily serves to protect individuals or businesses against financial loss resulting from lawsuits or claims made by others. This type of insurance helps cover legal costs, settlements, or judgments that may arise from incidents where the insured is found to be at fault. In many situations, liability insurance provides critical financial support in the event of bodily injury or property damage claims. For example, if someone is injured on your property or if you inadvertently cause damage to someone else's property, liability insurance can help shield you from the associated costs and legal fees, ensuring that you do not face significant financial burdens due to such incidents. The other options focus on different aspects of insurance: covering physical damage to property, insuring personal belongings, and providing coverage for natural disasters are more aligned with property insurance rather than liability coverage. Each of those types addresses different risks and does not encapsulate the essential protective function that liability insurance offers against the financial repercussions of legal claims.