What type of insurance covers damages to a third party for bodily injury or property damage?

Liability insurance is designed specifically to cover damages that an insured party may cause to a third party, including both bodily injury and property damage. In the context of liability coverage, it protects the insured against claims resulting from injuries and damage they may cause to others in the course of their activities. This insurance helps to cover legal costs, medical expenses, and any settlements or judgments awarded to the injured party, ensuring that the policyholder is not financially responsible for these costs out of pocket.

In contrast, health insurance primarily covers medical bills for the policyholder’s own health care, auto insurance generally includes both liability and coverage for the policyholder's own vehicle and injuries, and property insurance protects the insured's own property from risks such as fire or theft. While auto insurance does include liability components, it's not exclusively focused on third-party damages as liability insurance is. Thus, liability insurance is the most accurate answer for the type of insurance that specifically addresses damages to third parties.