Which type of insurance is typically used to cover the risk of legal liability?

Liability insurance is specifically designed to protect individuals and businesses from the financial repercussions that may arise from claims of negligence, injury, or damage to other parties. This type of insurance covers legal costs, settlements, and any awarded damages for which the insured may be held liable. It addresses the risk of legal liability directly, which is essential in situations where a third party may claim compensation for loss or injury caused by the policyholder's actions or negligence.

In contrast, property insurance primarily protects against damage to one's own property due to risks like fire or theft, while health insurance focuses on covering medical expenses incurred for health care. Auto insurance primarily covers incidents related to vehicles, such as collision, theft, or personal injury resulting from accidents, but it includes liability coverage as a part of the policy. However, liability insurance stands out as the dedicated form of coverage tailored specifically for legal liability risks.