What is the purpose of liability insurance?

Liability insurance is designed primarily to protect businesses from third-party claims related to bodily injury or property damage. This type of insurance helps cover legal fees, medical expenses, and other costs that may arise when a customer or another individual claims that they were harmed due to the business's operations or negligence in providing services. This coverage is critical for contractors, as they often work in environments where accidents can happen, leading to potential lawsuits.

In contrast, property damage coverage focuses on damages to the business's owned property or assets rather than the claims made by outside parties. Insuring physical assets pertains to protecting the business's inventory, equipment, or premises against risks like theft or natural disasters, which is distinct from liability coverage. Similarly, insurance for lost profits due to business interruptions addresses financial setbacks arising from unavoidable events that disrupt operations, which again does not relate to liability for third-party incidents. Thus, the emphasis of liability insurance on protecting against third-party claims makes it a crucial component of risk management for businesses.