What is the function of liability insurance in relation to claims made against an insured?

Liability insurance serves the primary function of indemnifying the insured against losses associated with claims made by third parties. This means that if an insured individual or business is held legally responsible for causing injury or damage to someone else, liability insurance provides financial coverage to pay for legal defense costs, settlements, or judgments that arise from these claims.

Indemnification ensures that the insured is protected financially, allowing them to recover from personal or business liability situations without incurring substantial out-of-pocket expenses. This protection is crucial for avoiding destruction of personal wealth or business assets, which can occur due to costly legal settlements.

The other options do not accurately represent the primary purpose of liability insurance. Evaluating premiums is more about pricing the insurance policy rather than addressing claims. Building equity pertains to asset management and value growth, which is unrelated to the nature of liability insurance. Finally, guaranteeing market value is not a function of liability insurance since it does not ensure any specific asset maintains its market value. Overall, the central role of liability insurance is to protect the insured against potential financial loss from third-party claims.