What is an indirect (consequential) loss?

An indirect, or consequential, loss refers to damage or financial loss that does not occur as a direct result of a peril but rather as a secondary effect stemming from the initial incident. This means that while there may be a triggering event, the consequences that arise are not immediately tied to that event. For example, if a storm damages a building (the direct loss), the resulting loss of income from the inability to operate the business while the building is being repaired would be considered an indirect or consequential loss.

In contrast, a direct loss is straightforward, where the peril itself directly results in damage. Consequently, options referring to direct causes or specific categories of loss, such as natural disasters or personal liability, do not accurately illustrate the concept of indirect loss as they’re either too specific or mischaracterized, focusing on immediate rather than extended impacts of an event. Understanding the distinction is essential for assessing risks and managing insurance claims effectively.