Which of the following best describes liability coverage?

Liability coverage is fundamentally designed to protect an individual or business from claims made by third parties for damages or injuries they may sustain due to the policyholder's actions or negligence. This type of coverage is essential in preventing significant financial loss that could arise from lawsuits or legal claims. For example, if an individual accidentally injures someone or causes property damage, liability coverage would help cover the costs associated with legal defense, settlements, or judgments that may arise from the incident.

The other options do not accurately describe the nature of liability coverage. Protecting against physical damage to property relates more to property insurance rather than liability. Eliminating the need for home insurance misrepresents the role of liability, as home insurance typically includes liability coverage but also encompasses coverage for the home and its contents. Lastly, stating that it provides coverage for personal belongings is misleading, as liability coverage specifically addresses third-party claims, not the policyholder's personal property. Thus, understanding the focus of liability coverage on legal claims against the insured is key to grasping its importance in insurance.