Alabama Insurance Adjuster Practice Exam

What is the primary purpose of liability insurance?

1. To cover all personal injuries

2. To protect the insured against legal claims

3. To reduce vehicle maintenance costs

4. To increase overall income for insurers

The correct answer is: To protect the insured against legal claims

Liability insurance is fundamentally designed to protect the insured from legal claims that may arise due to their actions or negligence. This type of insurance covers the costs associated with legal defense and any settlements or judgments that may be awarded against the insured in a lawsuit. It provides a financial safety net, ensuring that individuals and businesses can manage potential risks and liabilities without incurring significant out-of-pocket expenses. The rationale behind this coverage is rooted in the principle that individuals can be held legally responsible for causing harm to others or damaging their property. By having liability insurance, the insured can focus on their daily activities or business operations with the peace of mind that they are shielded from potentially devastating financial consequences of legal claims. Other answer choices do not align with the primary purpose of liability insurance. While covering personal injuries may be relevant, it is not the sole focus, as liability insurance also covers property damage and other legal expenses. Reducing vehicle maintenance costs is unrelated, as liability insurance pertains to legal liabilities rather than operational costs. The aim of increasing overall income for insurers is too broad and does not specifically identify the protective function that liability insurance serves for individuals and businesses.