What is an indirect loss?

An indirect loss refers to an economic loss that arises as a consequence of a direct physical loss. For example, if a business experiences a fire that damages its equipment (the direct loss), the resulting loss of income due to the inability to operate is classified as an indirect loss. This type of loss reflects the broader financial impacts that come from situations like property damage, beyond just the tangible repair costs.

In the context of insurance and financial assessments, understanding the distinction between direct and indirect losses is crucial for evaluating claims and determining the full extent of financial implications following an incident. This understanding allows adjusters and policyholders to recognize that while direct losses can be quantified by repair or replacement costs, indirect losses capture the ripple effects on business operations and overall economic health.