Property and Casualty Insurance Practice Exam

What is the primary characteristic of an indirect loss?

1. A loss that occurs directly due to fire

2. A loss that can be controlled by the insured

3. A loss that results from a direct loss

4. A loss that is certain to occur

The correct answer is: A loss that results from a direct loss

The primary characteristic of an indirect loss is that it results from a direct loss. In insurance, a direct loss refers to damage or destruction of property due to a specific peril, such as fire, theft, or storm. An indirect loss is consequential, arising as a secondary result of the initial direct loss. For example, if a business suffers a fire (a direct loss) that damages its premises, the business may also face lost income while it rebuilds or repairs the property, which is categorized as an indirect loss. This distinction highlights how indirect losses are contingent upon the occurrence of direct losses, emphasizing the chain of events and the financial impacts that extend beyond the immediate damage.