Canadian Accredited Insurance Broker (CAIB) One Practice Exam

In the context of property insurance, what does 'direct damage' refer to?

1. Any financial loss experienced by the owner

2. Physical harm to the insured property

3. Loss of business income due to interruption

4. Legal claims resulting from property damage

The correct answer is: Physical harm to the insured property

'Direct damage' specifically refers to the physical harm to the insured property itself. This includes any form of damage that occurs as a result of a peril insured against, such as fire, theft, or natural disasters. When assessing property insurance, claims relating to direct damage typically focus on restoring or replacing the tangible property that has suffered harm. This understanding is crucial for establishing what is covered under a property insurance policy and how claims will be processed. The other options relate to different aspects of loss or damage. Financial loss experienced by the owner can encompass many things, including indirect losses or other types of damages not specifically tied to the physical integrity of the property. Loss of business income due to interruption pertains to business interruption insurance, which deals with the financial implications of a halted operation rather than the physical state of the property. Legal claims resulting from property damage refer to liability coverage and legal implications, again not focusing on the physical condition of the insured property itself.