A liability insurance policy primarily pays which party?

A liability insurance policy is designed to protect the insured from the financial consequences of claims made against them by third parties. When a covered event occurs, such as an accident resulting in injuries or damage to another individual or their property, the liability insurance policy steps in to cover the costs associated with those claims.

This typically includes legal fees, settlements, and judgment amounts. The definition of liability insurance emphasizes that it exists to address the financial impact of a policyholder's potential negligence towards others. As a result, the payment is directed to the third party who has suffered the loss or injury, rather than to the insured or the insurer. In this context, the main function of the policy is to protect the insured's financial interests while satisfying the legitimate claims of injured parties.