Florida Insurance Licensing Practice Exam

Liability insurance specifically covers the legal responsibilities that an individual or business may incur for injury or damage caused to third parties. This type of insurance is designed to protect the insured from financial loss resulting from claims or lawsuits against them due to their negligent actions or omissions, which have led to injury or property damage to others.

For example, if someone is involved in a car accident where they are found at fault, their liability insurance would cover the medical expenses and property damage claims made by the other party involved in the accident. This coverage not only includes payment for damages but also legal defense costs if a lawsuit arises from the incident.

The other options reflect different types of coverage. Personal injuries sustained during an accident may involve a separate component of auto insurance, but it is not the focus of liability insurance alone. Coverage for replacing stolen property pertains to theft or property coverage rather than liability. Damage caused by natural disasters is typically covered under specific types of policies, such as homeowners or property insurance, rather than liability insurance. Therefore, option B accurately captures the essence of liability insurance.