What does a liability insurance policy cover?

A liability insurance policy primarily covers claims made against the insured for bodily injury or property damage to third parties. This means if the insured is found legally responsible for causing harm or damage to someone else, the liability policy will help pay for the costs associated with those claims, such as medical expenses for the injured party or repair costs for damaged property.

This type of coverage shields the insured from the financial burden of legal claims arising from their actions or negligence, allowing them to focus on their primary business or personal activities without the constant worry of potential lawsuits. Liability insurance is essential for protecting the insured's assets and financial well-being in the event of a claim, which makes this choice the correct answer.

Other options may portray aspects of insurance coverage, but they do not accurately define the scope of a liability insurance policy. For example, covering only the property damage to the insured's own property is not appropriate since liability insurance does not provide coverage for the insured’s property. Additionally, medical expenses for the insured and legal fees for all insurance claims do not fall under the typical purview of liability insurance, which focuses on protecting against claims made by others rather than the insured's own costs.