Consequential Loss

What Does Consequential Loss Mean?

A consequential loss refers to a loss that arises when a business cannot operate normally due to damage to equipment, property, or other hazards. In simpler terms, it is an indirect loss. While property insurance generally covers the direct damage to a building or structure, it may not cover losses in sales or revenue resulting from the initial damage.

Insuranceopedia Explains Consequential Loss

Consequential losses can lead to significant revenue loss. For instance, if a tornado damages a flower shop, the owners would likely lose income while the building undergoes repairs. When the disruption comes from damaged machinery rather than the building itself, a separate equipment breakdown coverage add-on often handles both the repair costs and the income lost while the equipment is out of service.

However, insurance policies are available to cover consequential losses. Business owners can opt for consequential loss policies to safeguard against such risks. These policies are often bundled with standard business and property insurance. One common bundled option is a business owner’s policy, which combines property coverage with business income protection for small and mid-sized companies.