direct loss

Direct loss in insurance refers to damage or loss that is directly traceable to a covered peril, such as fire or lightning. For example, if a fire destroys property, that is a direct loss. Insurance policies typically cover these direct losses, reimbursing the insured for the replacement cost of the destroyed property, often minus depreciation.12

However, insurance policies often exclude indirect losses, which are consequential damages that result from the direct loss. A common example is business interruption, where a business suffers lost profits or incurs fixed charges because its operations are halted due to a fire. While standard policies may exclude these indirect losses, separate contracts or endorsements, such as business income insurance, can be purchased to cover them. Property insurance, in general, can cover direct loss, consequential loss, and other types of losses.234