Why Your Small Business Needs Equipment Breakdown Insurance

What is Equipment Breakdown Coverage?

Equipment breakdown coverage (or mechanical breakdown insurance) is coverage of a loss due to mechanical or electrical breakdown of equipment. It used to be referred to as ‘Boiler and Machinery Insurance’ but is now generally categorized as equipment breakdown coverage or equipment breakdown insurance.

What Equipment is Included in Equipment Breakdown Coverage?

This policy covers equipment including:

• Boilers and furnaces
• Computer equipment
• Phones and communication devices
• Heating and air conditioning systems
• Refrigeration systems
• Home security systems
• Home entertainment systems

Equipment breakdown insurance usually covers the cost to repair or replace the above items, including time and labor associated. If there was food spoilage, that will be considered as well. Lost income is also covered under these policies. 

In this day and age, almost every business relies on computers and phone systems for the daily operation of the business. If power surges shut down or wipes out these systems —will you be prepared?

Examples of Losses Covered by Equipment Breakdown

Equipment breakdown insurance comes in handy in these scenarios:

• Example #1: The motor inside your commercial refrigerator burns out and needs to be repaired. The cost to repair—including labor—as well as food spoilage and product loss is covered with equipment breakdown insurance. 
• Example #2: If an electrical surge damages computer equipment or telephones the equipment breakdown policy can cover repair or replacement. 
• Example #3: Your air conditioning system malfunctions because a fuse is blown. The cost of repair is covered by your insurance company because you've invested in insurance on equipment.

Just like any other insurance policy, there is a limit—or maximum amount—that an insurance company will cover per claim submitted. If there are costs that exceed this maximum, you will be responsible for the coverage. The amount of coverage that is necessary varies from business-to-business but is typically affordable in comparison to the coverage you receive.

What Equipment is Excluded from Coverage? 

It’s important to understand this coverage is ‘hardware’ and not software coverage for your computers, phone systems, etc. For example—a virus or bug which causes computer failure is not covered, but a power surge that damages a motherboard would be. What else is excluded from coverage?

• Normal wear and tear due to aged equipment
• Deterioration of equipment caused by rust, corrosion, or mold
• Equipment that wasn’t properly stored or taken care of
• Property that was damaged by pests

Doesn’t My Commercial Property Insurance Cover This?

Many business owners believe their commercial property insurance would cover these claims—only to find out it’s not covered. Property insurance covers damages from sudden external causes such as fire, flooding, or a tree falling into your building. These policies don’t cover internal causes like an electrical or mechanical failure. This is where equipment breakdown insurance becomes necessary. Equipment breakdown coverage is often purchased in conjunction with property insurance. Some business income—or business interruption insurance—policies include breakdown coverage.

Does Your Business Need Equipment Breakdown Coverage?

Generally speaking, insuring equipment that is expensive to repair or replace should be a small business owners first priority. Here are just a few examples of businesses that should purchase equipment breakdown coverage: 

• If you own a restaurant or a food processing plant where damage to refrigeration units can leave you with a significant loss.
• You own a building with numerous employees with countless computers and phone systems.
• You own a machine shop with expensive machinery/tools and equipment that may be negatively impacted by mechanical or electrical breakdowns.

If you think your small business may benefit from this type of insurance, be sure to connect with an agent for more information. 

How Do You Get Equipment Breakdown insurance?

Insurance for equipment that is expensive to repair or replace may save your business. Equipment insurance can be as little as $25–$50 annually for $50,000 in coverage—well worth the minute expense. We recommend connecting with your commercial insurance agent or speaking to one of our qualified agents about the coverage minimums necessary, the cost of the policy, and whether or not you can add it as an endorsement to your business income insurance or purchase the policy from your insurance company separately.

Related Articles: General Liability Insurance, Commercial Property Insurance, Product Liability Insurance