Texas All Lines Adjuster Practice Test

Which of the following best describes indirect loss?

1. A physical loss resulting from theft

2. An economic loss following a physical loss

3. A loss that affects only property value

4. A mental anguish resulting from a direct loss

The correct answer is: An economic loss following a physical loss

Indirect loss is fundamentally tied to the consequences that ensue after a direct loss has occurred. When a physical loss, such as damage to property caused by an event like a fire or flood, takes place, it can trigger a series of economic repercussions. These repercussions often manifest as a decrease in income, increased expenses, or other financial impacts that arise because of the initial loss. For example, if a business suffers a fire that destroys its premises, the immediate loss is the property itself, but the business may also face indirect losses in the form of lost revenue during the downtime needed for repairs, added expenses for temporary facilities, or potential loss of customers. Thus, economic loss that follows a physical loss is the essence of what constitutes an indirect loss. The other options describe concepts that do not align with the definition of indirect loss. A physical loss resulting from theft encapsulates a direct loss; a loss affecting only property value is typically viewed as market fluctuation rather than an indirect loss; and mental anguish, while a legitimate concern, does not equate to the financial, economic impact that defines indirect losses.