What is the function of liability coverage in motor insurance?

Liability coverage in motor insurance is fundamentally designed to protect the policyholder from financial losses that arise due to claims made by third parties. When a policyholder is found legally responsible for causing injury or damage to another person or their property while operating a vehicle, liability coverage steps in to cover these costs. This includes medical expenses, property damage, and legal fees associated with defending against claims.

This type of coverage is essential as it helps ensure that the policyholder can meet financial obligations resulting from an accident without facing significant financial hardship. It effectively provides peace of mind by handling potential liabilities, thereby safeguarding the policyholder’s financial stability.

The other options address different aspects of motor insurance that do not relate to the primary function of liability coverage. For example, covering damages to the policyholder's vehicle pertains to comprehensive or collision coverage rather than liability. Similarly, benefits for rental car coverage and rewards for safe driving habits are not associated directly with the purpose of liability insurance, which focuses solely on financial protection against third-party claims.