What kind of loss does the term "Direct loss" refer to?

The term "Direct loss" refers specifically to physical damage resulting from a covered peril. This means that when an event occurs, such as a fire, flood, or storm, and it causes tangible damage to property, that resulting damage is classified as a direct loss. It encompasses the immediate damage to the physical structure or belongings, which can then lead to necessary repairs or replacements.

In the context of insurance, understanding the distinction of direct loss is critical because when a claim is made, insurers will look to see if the damages are the result of a covered peril as defined in the insurance policy. This is why physical damage is a core component of direct loss; it's the foundation upon which many insurance claims are built. While other terms might describe broader economic impacts or subsequent losses resulting from the initial damage, direct loss focuses on the immediate, visible consequences of the peril itself.