What type of insurance provides financial coverage against liabilities for damages caused by defective products?

The correct answer is a product liability policy. This type of insurance is specifically designed to protect businesses against claims or lawsuits arising from injuries or damages caused by defective products. When a product is found to be faulty and it results in harm to a consumer or damage to property, the manufacturer or seller may face significant financial liability. A product liability policy helps cover legal costs and compensation payouts that may result from such claims, ensuring that the business is financially safeguarded in these situations.

In contrast, the other types of insurance mentioned do not address liabilities stemming from product defects. A business interruption policy focuses on compensating businesses for lost income due to interruptions in operation, not liability coverage. A material damage policy typically covers physical loss or damage to property rather than liability issues. Public liability policies primarily protect businesses against claims for injury or property damage arising from activities that affect the public, but they do not specifically address defects in products. Thus, a product liability policy is the most relevant and targeted type of coverage for the scenario described in the question.