South Dakota Crop Insurance Practice Exam

What is an indirect loss?

1. A loss due to theft

2. A result or consequence of a direct loss

3. A loss from natural disasters

4. A loss of property value

The correct answer is: A result or consequence of a direct loss

An indirect loss refers specifically to the consequences that arise as a result of a direct loss event. When a direct loss occurs—such as damage to a building due to a fire—indirect losses can manifest in various ways, including business interruption, loss of income, or other secondary effects that impact overall financial stability. For example, if a farmer loses a significant portion of their crop due to a storm (the direct loss), the subsequent inability to sell those crops results in lost revenue (the indirect loss). This distinction is crucial in understanding insurance coverage because while direct losses can often be quantified more easily, indirect losses can be more complex and may require additional coverage options to safeguard against. The other choices, while they may describe types of losses, do not capture the essence of what an indirect loss is about in this context. Theft, natural disasters, and loss of property value are typically associated with direct losses or specific categories of loss events rather than illustrating the impact felt as a consequence of a primary damage event.