How Does Equipment Breakdown Insurance Work?
If your business’s equipment suddenly stops working, you could quickly find yourself tens-of-thousands of dollars in the hole while also unable to meet customer demand.
Fortunately, commercial equipment breakdown insurance can provide a safety net to get you back up and running as quickly as possible. Here are the quick and easy basics.
For the most part, standard commercial property policies cover damage caused by external forces (e.g., fire). Therefore, they exclude coverage for equipment used in the course of business, whether owned by your company or in its care, custody, and control.
To help protect against damages caused by internal forces, equipment breakdown insurance—also commonly referred to as mechanical breakdown or boiler and machinery insurance—is typically available as an optional add-on to your business owner policy (BOP).
Once in place, the endorsement provides coverage for sudden and accidental malfunctions for nearly any type of equipment, across five different categories:
- Mechanical – Includes specialized production and manufacturing equipment, elevators and escalators, system components, engines, generators, water pumps, etc.
- Electrical – Includes electrical panels, transformers, power cables, etc.
- Computers & Communications Equipment – Includes phone and voicemail systems, computer systems, security and fire systems, retail point-of-sale devices, photocopiers, etc.
- Air Conditioners & Refrigeration Systems – Heating, ventilation, etc.
If covered equipment is damaged, breakdown insurance can pay to repair or replace the equipment, including time and labor, lost income, spoiled stock or materials, and extra expenses incurred while the restoration is ongoing.
Keep in mind that, like most other commercial insurance types, equipment breakdown coverage is subject to a per-incident deductible, which can vary depending on your company’s needs (more soon). Furthermore, if you exceed coverage limits, you’ll be responsible for paying any overages out of your pocket.
Does Equipment Breakdown Insurance Exclude Any Coverage Scenarios?
Normal wear and tear are typically excluded from equipment breakdown coverage, so if your machinery fails from poor maintenance or has outlived its useful lifespan, chances are it won’t be covered.
Additional exclusions under equipment breakdown insurance include mechanical breakdown (except for elevators and escalators), steam boiler, pipe, and engine explosion, and artificially generated electrical, electromagnetic, or magnetic energy.
What Are Some Examples of Commercial Equipment Breakdown Coverage in Action?
Equipment Breakdown Coverage Example #1:
You own and operate a mid-size IT firm, including a server cluster.
One weekend night during an especially nasty storm, a massive power surge strikes. Even though you already had extensive prevention measures in place, the surge fries 50 percent of your equipment, causing you to shut down while the equipment is repaired temporarily.
Equipment Breakdown Insurance Example #2:
Your sign company has been in business for 20 years, with no previous mechanical issues.
However, during one weekend, a failed mount on one of your presses causes it to become unbalanced and shakes loose several critical internal parts.
Equipment Breakdown Coverage Example #3:
You just replaced the boiler at your business location, but a faulty section of pipe cracks at the seam. You don’t discover the issue until arriving at work the next morning, resulting in tens of thousands worth of water damage.
Which Businesses Should Consider Purchasing Commercial Equipment Breakdown Insurance?
Because a single incident can cripple your business for weeks and result in significant repair costs, any company that owns, leases, or stores production equipment should consider equipment breakdown insurance.
This type of coverage is essential to consider if you only have a business owner policy in place, which expressly excludes coverage for commercial equipment breakdown.
Additional reasons to purchase equipment breakdown insurance include:
- You can’t afford to pay for potentially expensive repairs out of pocket.
- Your production and customers would be significantly impacted if your equipment breaks down.
- Your business’s reputation is damaged as a result of the breakdown.
- You need to rent a temporary location after a loss.
- You want peace of mind that if your equipment breaks down due to a covered peril, you’ll have support when you need it most.
- A breakdown could cause bodily injury to an employee and result in medical and surgical treatments.
- Your products require temperature regulation.
- Your company leases equipment to other businesses.
How Much Does Equipment Breakdown Coverage Cost?
For the most part, equipment breakdown insurance is available as an optional endorsement you can add to your commercial policy or business owner policy (BOP).
In general, coverage is very affordable, depending on factors like coverage amount, your business’s industry, past losses, the deductible you choose, if your equipment is owned or leased, where it’s stored, and if you have the property of other businesses in your care, custody, or control.
Who Can Provide You with Additional Information About Equipment Breakdown Coverage?
I recognize that you’ve put in the time and worked diligently to get your business to the place it is today. And you’d be devastated if a simple equipment breakdown caused it all to fade into thin air.
This is why the professionals at IHS Insurance Group can work directly with you to determine how much equipment breakdown coverage you need and which carrier might deliver the most value for your hard-earned dollar. Give us a call now!
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