What does the term 'indirect loss' refer to in insurance?

The term 'indirect loss' in insurance refers to the financial loss that occurs as a consequence of a primary or direct physical loss. For instance, if a building suffers damage from a fire, the immediate costs to repair the building represent direct loss. However, if the fire affects the business's operations leading to a loss of income during the repair period, that income loss is categorized as an indirect loss.

This distinction is important in insurance claims, as policies often differentiate between direct and indirect losses, and coverage for indirect losses may vary depending on the specifics of the policy. Understanding this concept helps policyholders effectively manage their expectations and understand their coverage better.