Hawaii Insurance License Practice Exam

What is the primary purpose of liability insurance?

1. To cover personal property losses

2. To protect against legal claims

3. To pay for vehicle repairs

4. To cover medical expenses

The correct answer is: To protect against legal claims

The primary purpose of liability insurance is to protect against legal claims. This type of insurance is designed to provide financial coverage for individuals or businesses if they are found legally responsible for causing harm or injury to another person, or for damaging someone else's property. In the event of a lawsuit, liability insurance can help cover legal fees, court costs, and any settlements or judgments awarded to the injured party. This form of insurance is crucial for mitigating the financial risks associated with potential lawsuits, ensuring that policyholders are not left to bear the full financial burden of legal claims. It is an essential component of financial protection for both individuals and businesses, particularly in scenarios where the risk of being sued is higher, such as in professional services or during activities that could result in bodily injury or property damage. The other options, while they relate to insurance, do not align with the primary focus of liability coverage. Covering personal property losses pertains to property insurance, paying for vehicle repairs is typically associated with auto insurance, and covering medical expenses is more relevant to health or medical insurance rather than liability insurance.