Unit 1 Q 11
Peter Bubba is driving home from a bar when he runs off the road and hits a telephone pole. These are the losses he suffers: $4,500 to repair the damage to his car; $2,500 damage to the telephone pole and lines; $550 for doctor and medicine costs; and, $300 to rent a car while his car is being repaired. What is the correct name for each of these losses? What is the difference between them? Please give examples of each.
The damage to Peter’s car, the telephone pole and lines are direct losses as they are the immediate damage resulting directly from his car accident. Other examples of direct losses are a warehouse if it burns down in a fire, the contents of the warehouse if they are also destroyed, and the delivery truck parked next to the warehouse if it is destroyed by the fire as well.
The cost of the doctor, medicine, and rental car are indirect losses as they are consequences of the accident. If Peter hadn’t had the car accident, he wouldn’t have needed to go to the doctor, buy any medicine, or rent a car. Other potential indirect losses in this instance might be wages lost due time missed from work, loss of his driver’s license if he was driving while impaired, or even loss of his job if his employer requires a clean driving record.
Direct damage refers to the immediate damage to property or assets, while indirect damage refers to the consequences of that damage or of being deprived of use of the property. There is more to lose than just the warehouse mentioned above, its contents, and the truck. The business could also lose sales, customers, employees, and vendors and suppliers if they cannot pay their bills due to lost revenue.
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