What is the primary difference between property insurance and liability insurance?

The primary difference between property insurance and liability insurance lies in the nature of the protection each type offers. Property insurance specifically covers losses related to physical assets, such as damage to buildings, personal belongings, or vehicles. This type of insurance provides financial reimbursement when these physical items are lost or damaged due to various events like theft, fire, or natural disasters.

In contrast, liability insurance protects against claims made by third parties for damages or injuries that the insured might cause. This means that if someone suffers a loss due to the insured's actions—whether it be through bodily injury or property damage—liability insurance helps to cover the associated costs, including legal fees and settlements.

The option that indicates that property insurance covers physical losses while liability insurance covers third-party losses accurately encapsulates this fundamental distinction, emphasizing the focus of each insurance type on different aspects of risk and protection.