Which term describes economic losses that result from a direct loss, such as lost income?

• A. Direct Loss
• B. Indirect Loss
• C. Peril
• D. Warranty

Answer: (B)

Indirect losses describe economic losses that occur as a result of a direct loss. When property is damaged (the direct loss), the financial impact that follows—such as lost income because the business can’t operate or rents that can’t be collected—qualifies as an indirect loss. Peril refers to the cause of the loss (for example, fire or wind), and a warranty is a contractual promise, not a loss type. Direct loss is the physical damage itself, not the ensuing financial effects. So the description given—economic losses that arise from a direct loss, such as lost income—fits indirect loss (also called consequential loss).