What does 'liability insurance' protect the insured from?

Liability insurance is designed to protect the insured from claims that arise due to injuries or damages that the insured may cause to other people or their property. This type of insurance provides coverage for legal costs and settlements that may result from such claims, which can be substantial depending on the circumstances of the incident. For example, if a person accidentally injures someone in a car accident or causes damage to someone else's property, liability insurance would cover the claims made against them, ensuring they have financial protection in these situations.

The other options do not accurately reflect the purpose of liability insurance. It does not cover loss of property value, which would pertain more to property insurance or market fluctuations. Underinsurance penalties relate to having less coverage than required but are not a focus of liability insurance. Lastly, costs associated with policy lapses are not covered under liability insurance as they pertain to financial planning and management of insurance rather than the claims arising from actions that cause harm to others.