South Carolina Personal Lines Practice Exam

What term refers to damage where the insured peril was the proximate cause of loss?

1. Indirect loss

2. Direct loss

3. Contributory loss

4. Collateral loss

The correct answer is: Direct loss

The term that refers to damage where the insured peril was the proximate cause of loss is direct loss. In insurance terminology, a direct loss occurs when damage or loss is a direct and immediate result of an insured peril. This means that the event that caused the loss is clearly linked to the specific risk that was insured against. For instance, if a house is damaged by a fire, and the fire is covered under the homeowner's policy, the damage to the house would be classified as a direct loss because it directly results from the insured peril of fire. The concept of proximate cause is essential here; it establishes a clear, causal relationship between the insured event and the resulting damage. In contrast, other terms describe different types of losses. Indirect loss refers to secondary losses that occur as a result of a direct loss, such as loss of income that results from a business being temporarily unable to function due to a fire. Contributory loss involves multiple causes but does not necessarily establish a primary cause. Collateral loss refers to losses that are incidental or secondary to the main loss, which further distinguishes it from direct loss.