Equipment breakdown insurance protects equipment, including electrical, mechanical, and computer equipment, from damage or breakdowns as an optional part of a business insurance policy.
If your small business uses equipment — like computer systems, phone systems, refrigeration, or manufacturing equipment — to function, you may choose equipment breakdown coverage as part of your business insurance policy to help keep that equipment running properly and cover any lost income if it breaks down.
It’s an optional selection that can cover the costs of repairing or replacing damaged equipment, but only if the incident that caused the damage or breakdown is covered in the policy, and only if the equipment type was covered in the policy.
Some insurance companies refer to this coverage as boiler and machinery insurance or mechanical breakdown insurance. These are older terms for the coverage and are becoming outdated as computers and electrical systems become more important to the day-to-day operations of more and more businesses.
Read on to find out why you may need equipment breakdown coverage and how it works.
Why is Equipment Breakdown Coverage Important?
Most small businesses use some form of equipment as part of their main business offering. Whether it’s the washers and dryers in a laundromat, the refrigerators and ovens in a restaurant, or the bottling equipment for a brewery, this equipment is part of the day-to-day operation of the business. Even small businesses that primarily work from home use equipment like computers and phone systems that are integral to reaching their customers. The problem is that accidental damage to this equipment may not be covered through homeowners insurance or other policies.
Equipment breakdown coverage can help keep your business afloat if an accident happens that damages your equipment. Not only does this additional insurance cover the cost of repairing or replacing the damaged equipment; it can also cover lost revenue if you have to shut down and replacement costs for spoiled inventory as well. It even covers issues caused by operator error, so if one of your employees accidentally breaks your equipment, you can cover losses while fixing it.
This additional coverage may also cover costs that your business owner’s property policy, liability insurance, and other coverage options don’t. Your insurance agent can help you understand what’s covered and what isn’t, and how to file a claim should an accident occur.
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What Does Equipment Breakdown Coverage Cover?
Equipment breakdown coverage covers the cost of repairing or replacing specific types of equipment breakdown or damage for specific reasons. Make sure you check with your insurance agent to double check what equipment is covered by your specific policy and why, but here are some general features of most policies.
Equipment Types Covered by Equipment Breakdown Coverage
Equipment breakdown coverage will cover your mechanical, electrical, and computer equipment from damage and breakdown. Covered equipment includes:
- Water pumps and sump pumps
- Water heaters
- Manufacturing equipment
- Electrical systems
- Electrical panels
- Computer systems
- Phone and voicemail systems
- Fire alarms and security systems
- Air conditioners and HVAC systems
- Refrigerators and freezers
- Boilers and pressure equipment
When you file a claim to your insurance provider and they approve it, equipment breakdown coverage will help pay the cost to repair the equipment, including time and labor or any expenses that you incur while repairing it. If repair isn’t possible, they’ll cover the cost to replace it.
How You Can Use Equipment Breakdown Coverage Reimbursement
You can also use this coverage to cover lost business income and spoiled inventory, depending on your claim.
So, for instance, if you run a bakery and a power surge causes you to lose power for a day or more, you may lose eggs, milk, and other refrigerated items while the power is out. You may also lose business income because you can’t use your computer system to ring up purchases.
What if your air conditioning system quits working because of the ensuing power outage, and you have to close the bakery because you can’t keep a consistent, comfortable temperature for your employees or customers? And what if your ovens can’t work so you can’t produce fresh bakery goods to sell? You’d also lose income from all of these interruptions.
If the power surge damages your computer system or other electrical equipment like your refrigerators, you may lose even more business income waiting to replace or repair that equipment. If your electrical systems or transformers go through any short circuits, there may be property damage there as well. And you may have to pay a specialist for parts and labor to repair everything.
Equipment breakdown insurance would cover the costs of the spoilage, lost income, and repair. Different equipment breakdown policies may cover
Events Covered by Equipment Breakdown Coverage
Only certain events that cause damage or breakdown to your equipment will be covered by insurance. In general, equipment breakdown insurance covers internal forces, such as:
- Power surges
- Electrical shorts
- Mechanical breakdowns
- Motor burnout
- Operator error
Your insurance provider may require an investigation to make sure that the breakdown or damage was accidental and unexpected.
What is Not Covered Under Equipment Breakdown Insurance?
Not every instance of breakdown or repair for your equipment is covered by equipment breakdown insurance. If your equipment malfunctions from normal wear and tear, old age, or damage caused by neglect, that won’t be covered by your policy. This includes damage from rust, corrosion, or mold or damage from rats, mice, or insects. The software on your computer systems will not be covered by the policy, either.
If your equipment is destroyed because of a natural disaster, such as a flood, fire, or storm, equipment breakdown coverage won’t cover the damage or repairs. You’ll need specialized insurance for those instances. You can also talk to your insurance provider about your insurance coverage on your commercial property insurance when you purchase it. If your commercial property insurance and equipment breakdown insurance don’t cover damage or failure of your equipment, you can also check your warranty.
If the accidental damage was caused by operator error, your equipment breakdown insurance won’t cover the cost of any medical treatments of injuries to employees or customers. Your business owner’s policy or liability insurance should cover those issues.
Does Commercial Property Insurance Cover Equipment?
In one word: no. At least, not usually. Commercial or business property insurance can protect your equipment from damage to your property like a tornado, hailstorm, or a fire, but it won’t cover the main events that equipment breakdown insurance covers. So if you experience motor burnout, operator error, or other accidental and unexpected damage, you’ll want to turn to your equipment breakdown coverage.
Equipment breakdown coverage may be a good idea if you use equipment to make your business run. You may be able to add it to an existing business owner’s insurance policy, or make sure you have it when you start your business or buy new equipment. It can be a lifesaver for any small business that may lose income or inventory due to accidental damage and equipment failure.
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This article was originally written on April 14, 2022 and updated on April 20, 2022.
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