What is an indirect loss?

An indirect loss is defined as a loss that occurs as a result of a direct loss. This type of loss typically arises when a property or business is damaged or destroyed due to a covered peril, leading to subsequent financial repercussions. For example, if a business experiences a fire (the direct loss) and has to temporarily close, the income lost during that closure is considered an indirect loss.

Indirect losses can encompass various financial impacts, such as loss of income, additional expenses incurred to maintain operations during the recovery period, or other consequential losses that stem from the initial direct damage. Understanding the distinction between direct and indirect losses is crucial for assessing the overall financial impact of an insured event and is a key consideration in insurance coverage and claims processing.