Alberta General Insurance Level 1 Practice Exam

Liability insurance is primarily designed to provide financial protection to the insured party against claims made by others for damages they are legally responsible for. This typically includes compensation for property damage and bodily injury inflicted on third parties. When someone suffers a loss or injury due to the policyholder’s actions or negligence, liability insurance helps cover the costs associated with these claims, thus shielding the insured from out-of-pocket expenses that could be financially devastating.

While other forms of insurance, such as health or property insurance, focus on covering the insured party's own injuries or losses, liability insurance specifically addresses the responsibility one has towards others. Therefore, the option highlighting compensation for property damage caused to others aligns perfectly with the essence of liability insurance, reinforcing its role in protecting individuals and businesses from the financial fallout of legal claims and lawsuits.