State Farm Insurance License Practice Exam

Which situation would most likely constitute a direct loss?

1. Theft of equipment from a business

2. Reputation damage due to bad publicity

3. Consumable goods spoiling due to poor storage

4. Loss of future sales due to business interruption

The correct answer is: Theft of equipment from a business

A situation that constitutes a direct loss involves physical damage or loss to tangible property. In the case of theft of equipment from a business, it directly affects the business's assets by removing property that has value. This loss is quantifiable and can be specifically measured through the replacement cost or the value of the stolen equipment. This scenario contrasts with the other options. Damage to reputation due to bad publicity is considered an indirect loss as it affects future earnings rather than tangible assets. Consumable goods spoiling due to poor storage can be seen as a direct loss, but in this context, it often relates to a broader category of financial loss rather than directly linked to physical theft. Loss of future sales due to business interruption is also an indirect loss, as it pertains to potential earnings rather than a current loss of physical property. Thus, theft of equipment stands out as the most clear-cut example of a direct loss.