Louisiana P&C Adjuster Practice Exam

Which statement is false regarding liability insurance?

1. Liability insurance provides indemnification for the insured

2. Liability insurance covers legal defense costs

3. Liability insurance protects against bodily injury to third parties

4. Liability insurance can cover property damage

The correct answer is: Liability insurance provides indemnification for the insured

The concept of indemnification in liability insurance refers to the compensation provided to the insured for damages or claims against them arising from their actions or negligence that result in loss or injury to others. This is a fundamental function of liability insurance, as it is designed to protect the insured by covering the costs associated with claims made against them, up to the policy limits. Liability insurance indeed provides financial protection by covering legal defense costs, which is crucial because defending against claims can often be as expensive as facing the claims themselves. Additionally, such insurance is structured to protect the insured against bodily injury or property damage they may cause to third parties, thereby fulfilling its role of providing security against unforeseen incidents that could lead to substantial financial loss. In summary, all the statements regarding liability insurance accurately reflect its purpose and functions, affirming that the assertion regarding indemnification stands true and is indeed a valid characteristic of liability insurance.