What Is Equipment Breakdown Insurance Coverage?
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Equipment breakdown insurance is a commercial policy that pays to repair or replace machinery or equipment that suddenly stops functioning usually due to some mechanical or electrical failure, like if a printer bolt suddenly came loose and damaged the cylinder or if an electrical arc caused your kitchen equipment to stop functioning. However, equipment breakdowns that occur from natural wear and tear and poor maintenance will not be covered. This type of coverage can also cover a portion of your lost revenue if the breakdowns cause your business to shut down temporarily.
According to FM Global, equipment breakdown accounted for nearly 33% of all property-related losses in 2018. Keep reading to learn about equipment breakdown insurance and how it may help your business.
What Does Equipment Breakdown Insurance Cover?
Equipment breakdown insurance will cover sudden or accidental physical damages to your equipment, such as short circuits, power surges, motor burnouts, steam explosions or some other mechanical or electrical breakdown but will not cover breakdowns from natural wear and tear or poor maintenance.
Wear and tear issues typically accrue over time and can take the form of corrosion, rusting and leaking causing a gradual decline in performance. For example, components inside POS terminals placed outside in high humidity may experience accelerated corrosion over time. While this can affect its performance, this type of wear and tear would not be covered under equipment breakdown insurance. Be sure to talk to your insurance agent about wear and tear scenarios of your specific equipment and how equipment age can affect your insurance costs and risks.
Your insurance company will cover sudden breakdowns for most types of equipment that fall within the following categories:
- Mechanical: Motors, engines, fans and other types of mechanical equipment are prone to sudden breakdowns.
- Electrical: Electrical panels and cables can temporarily fail due to short circuits, power surges, electrical arcing.
- Air conditioning and refrigeration: Components of your HVAC or refrigeration units can fail. Equipment breakdown insurance can cover spoiled inventory due to faulty refrigeration.
- Computers and communications: Many businesses today rely on computers and other electronics to function. Power surges, moisture and improper handling can lead to electronic breakdowns.
- Boilers and pressure vessels: Includes equipment for heat, hot water and cooking.
Here are common types of equipment covered under an equipment breakdown coverage policy:
On top of repairing or replacing broken equipment, equipment breakdown insurance covers:
- Mandatory inspections: Identify problems with equipment before major breakdowns occur.
- Lost revenue: Pays a portion of your income loss if broken equipment forces your business to temporarily close. For example, if your ovens stop working and you run a bakery, equipment breakdown insurance can cover some of your lost revenue until normal operations resume.
- Property damage liability: Covers liability costs when your faulty equipment causes property damage or injuries to another person.
Here’s an example of how equipment insurance breakdown works. John owns a bakery, John’s Baked Goods, and one day, none of the equipment works, including the lights, ovens, refrigerators and cash register. Unfortunately, John has to shut down his bakery for the day until he can resolve this issue. A repair professional later investigates the issues and discovers how an electrical arc destroyed the bakery’s electric panels, leaving the building without power.
Fortunately, his equipment breakdown coverage pays to repair his malfunctioning electrical panels. He is also covered for the revenue lost from closing his business for the day and the food spoiled from the lack of refrigeration.
What Equipment Breakdown Insurance Won’t Cover
Equipment breakdown insurance will not cover you for the following types of losses.
- Ordinary wear and tear
- Old age
- Neglect or lack of maintenance
- Natural disasters (e.g., fire, flood, storm, tornado, volcanic eruption)
- Medical expenses for employees, if breakdown caused by user error
- Losses from external sources (e.g., fire, theft, vandalism)
- Costs that exceed your policy limit
Equipment Breakdown Coverage Vs. Commercial Property Insurance
Both equipment breakdown insurance and commercial property insurance will insure covered equipment but will cover different types of losses.
- Commercial property coverage insures your equipment from specific types of external perils, such as fires, windstorms, theft and vandalism.
- Equipment breakdown coverage ensures your equipment from electrical or mechanical failures, such as power surges or electrical shorts.
Do You Need Equipment Breakdown Coverage?
There is no requirement that your business have equipment breakdown coverage but it can be worth buying the additional coverage. Imagine a mechanical breakdown renders your business inoperable for the entire weekend — that may amount to thousands of dollars lost in revenue. Even small businesses that are home-based may use computer equipment, phone systems and other electronics critical to day-to-day operations. Protecting this equipment is vital.
Without equipment breakdown insurance you may face considerable financial losses when critical equipment and machinery stop working. According to HSB Insurance, restaurateurs can expect to pay nearly $5,000 for an equipment breakdown with the most common breakdowns being small refrigeration units, small air conditioning units and electrical equipment.
Average Cost After Breakdown
Most Common Causes
Small refrigeration units
Electrical, mechanical, control failure
Small air conditioning units
Electrical, mechanical, lack of lubrication
Electrical equipment (e.g., breakers, wires, panels)
Loose connections, insulation deterioration, supply line surges
How Much Does Equipment Breakdown Coverage Cost?
Equipment breakdown insurance can range from $400 to $800 per year. Actual costs can vary based on your industry, business size and the type of equipment, among other factors.
If you’re a smaller business with less robust equipment needs, you may benefit from a business owners policy, which bundles equipment breakdown coverage with other types of coverage, like general liability. However, businesses with sophisticated and expensive equipment may benefit from the higher limits a standalone equipment breakdown policy may offer.
The age of your equipment can also affect the cost of equipment breakdown insurance. Generally, older equipment is more expensive to insure since it may be more challenging to find replacement and may be more susceptible to sudden breakdowns.
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Best Equipment Breakdown Coverage Providers
Equipment breakdown insurance is available from several national insurance carriers. We’ve highlighted some noteworthy picks below:
For businesses that want truly comprehensive coverage, Travelers offers EnergyMax 21, which covers virtually every type of equipment loss and breakdown. Travelers is a national carrier boasting a superior financial rating, which indicates it has the financial capability to pay claims. Travelers equipment breakdown insurance product is ideal for nearly every type of business, from brick-and-mortar retail stores and manufacturing plants to high-tech businesses and real estate.
With Nationwide’s equipment breakdown insurance, business owners will have all the standard coverages of equipment breakdown insurance, including mechanical and electric failures, broken equipment and loss of revenue. With its superior financial rating, business owners can trust Nationwide to make good on its claim payouts.
Nationwide’s equipment breakdown policies may also provide coverage when another provider’s equipment breakdown affects your business. For instance, if you operate an online store but your website host provider experiences electric surges that are preventing customers from navigating your website, equipment breakdown coverage may still pay for lost business income.
We highlight Chubb for its Green Standards feature, which allows qualified businesses to rebuild covered equipment losses to LEED standards or replace equipment with more energy-efficient alternatives. Business owners can also purchase the Enhanced Safety feature, which will increase your limits by 25% to rebuild or replace existing equipment with safer features.
Chubb serves a wide range of industries, including wholesale and retail, commercial real estate, hotels, food processing, cold storage and chemical manufacturing.
How To Get Equipment Breakdown Insurance
Follow the steps below to get equipment breakdown coverage for your business.
1. Assess Your Insurance Needs
How much coverage you need will depend on what type of equipment you have. Depending on your business, you may benefit from buying a business owners policy. A business owners policy is an insurance policy that bundles multiple types of coverages, including general liability, commercial property and equipment breakdowns.
For many small business owners, a BOP can be a convenient commercial insurance solution that covers several types of risks. Larger enterprises with sophisticated equipment needs may want to purchase a standalone policy with higher limits.
2. Shop Around
Comparing rates from multiple insurance companies is the best way to secure the cheapest rate in current market conditions. If your business, car, homeowners or renters insurance company sells equipment breakdown insurance, ask your provider if buying a commercial policy with them will qualify you for a bundle discount.
When shopping for a quote, you will be asked several questions about your business, including its location, industry, employee count, annual revenue and types of equipment used.
3. Revisit Your Insurance Needs Regularly
Over time, your business can grow and you may need to increase your coverage limits or find a cheaper policy from another insurance provider. Regularly assess your insurance needs to ensure your coverage is adequate for your current business operations.
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Protect your business equipment for times when it suddenly breaks. SmartFinancial can help you find a commercial insurance policy that will protect you and your business. Just enter your zip code below or call 855.214.2291 to receive your free commercial insurance quotes.