What to Know About Equipment Breakdown Insurance

If your work equipment unexpectedly fails, who you gonna call? Your equipment breakdown insurance company, of course. Equipment breakdown insurance covers the abrupt and accidental breakdown of equipment due to internal causes of failure, such as electrical and mechanical issues.

Businesses that rely on refrigeration units, medical devices, computers, and other equipment should consider equipment breakdown insurance. Let’s go over what you need to know about equipment breakdown insurance, how it differs from standard property insurance, and coverage details.

What Does Equipment Breakdown Insurance Cover?

Let’s dive into what equipment types and damage types are typically covered by equipment breakdown insurance.

Types of Covered Equipment

Mechanical Equipment: Equipment breakdown insurance covers HVAC systems and other critical machinery.

Electrical Equipment: Electrical panels, transformers, and generators are covered. For example, if a power surge takes out your electrical panel, insurance can cover the repair and replacement costs.

Computers and Technology: Servers, communication systems, and office electronics such as printers and photocopiers are covered. Note that this is NOT the same as cyber insurance. Equipment breakdown insurance mainly covers electrical, mechanical, and internal failures.

Production and Manufacturing Equipment: Specialized machines used in production lines and processes are covered.

Refrigeration and Food Processing: Equipment breakdown insurance covers machinery for food storage and processing, including fridges, coolers, and freezers.

Types of Damage Covered

What damages and financial losses are covered can vary depending on your chosen insurance provider and policy. Here are the damages typically covered by equipment breakdown insurance.

Power Surges: Damage due to electrical surges or short circuits can break electrical systems.

Mechanical Failures: Breakdowns due to mechanical issues like overheating or part failures.

Operator Errors: Coverage for losses caused by human error or improper handling.

Explosion or Breakdown of Pressure Systems: Failures of boilers and pressure systems.

Other Losses Covered

Lost Income: Insurance can pay out if your equipment breaks and leads to lost income.

Perishable Products: If you have stock that is wasted due to equipment breakdown, such as if food rots due to the freezer malfunctioning, insurance can cover the losses.

What Does Equipment Breakdown Insurance Not Cover?

Not all sorts of equipment breakdowns are covered. Here are situations that are typically excluded from coverage.

Wear and Tear: Time and usage wears down all components of equipment and machinery. Equipment breakdown insurance does not cover equipment damages and failures due to wear and tear, as well as rust and decay.

External Damage: Commercial property insurance is what you need if you want your financial investments protected from external risks, such as theft, storms, and fire.

Deliberate Damage: If the equipment is purposefully damaged, it usually cannot be covered by insurance.

Negligence: Companies are expected to take reasonable care of their equipment. This is why it is crucial to comply with equipment safety guidelines and maintenance recommendations.

Cyber Attacks: Cyber liability insurance can cover damages that result from malicious cyber actors. Equipment breakdown insurance does not cover damages from cyber attacks.

Benefits of Equipment Breakdown Insurance

Minimizing Downtime

Insurance is useful for helping businesses recover from the destruction and breakdown of work equipment. It covers repair and/or replacement costs, letting companies cut down on the amount of operational downtime.

Financial Protection

Repairs and replacements of specialized equipment and machinery can cost thousands of dollars. Insurance coverage helps with these costs, providing reimbursements for the Actual Cash Value (ACV) of your broken equipment.

In addition, equipment breakdown insurance may also help companies deal with loss of income due to equipment failure.

Enhanced Risk Management

Insurance plays an important role in a company’s risk management strategy. It’s no secret that businesses often need to pay hundreds, if not thousands, of dollars on insurance premiums every year.

Equipment breakdown coverage is a specialized business insurance policy that can reduce the unpredictable financial burden that comes with equipment damages.

Covers Gaps Left by Property Insurance

Traditional commercial property insurance mainly covers equipment loss from physical factors. For example, it might cover vandalism, fires, and theft. This coverage isn’t enough for certain sectors. What if you use electrical appliances or depend on machinery for successful business operations?

Equipment breakdown insurance fills gaps in coverage that exist in standard property insurance policies. It ensures you have more comprehensive, reliable coverage for your business equipment.

Who Needs Equipment Breakdown Insurance?

Key Industries

The industries benefiting the most from equipment breakdown insurance are those that depend on machinery for business operations. Here are the main industries that should consider equipment breakdown insurance.

Manufacturing: Production lines can get disrupted by manufacturing equipment breakdown.

Healthcare: Medical and diagnostic equipment are crucial for the continuous treatment offered by healthcare facilities. MRI machines and ventilators are good examples of what essential equipment can abruptly breakdown, causing serious stress.

Hospitality: Hotels and food services should consider equipment breakdown insurance to cover refrigerators, HVAC systems, washing machines, and other appliances and equipment. Insurance can help you more quickly recover from the financial loss of broken freezers and spoiled food.

Agriculture: Farming and agriculture use expensive, specialized equipment for planting, harvesting, and other processes. Any equipment breakdown can severely hurt seasonal revenue. Equipment breakdown insurance can help farmers more quickly repair and replace essential equipment.

Small to Large Businesses

Businesses of all sizes can benefit from equipment breakdown insurance.

Small business owners often opt for a generic business owner’s policy (BOP) or general liability insurance. While crucial, those plans do not usually cover equipment breakdowns. If essential equipment breaks, it may be too expensive for the small business to afford repairing or replacing it.

Large enterprises often have plenty of equipment and assets. This may increase the frequency of breakdowns. Needing to replace or repair equipment without insurance can needlessly drain enterprise resources. Insurance is a good way to mitigate losses and equipment issues in the enterprise across the board.

Any Company Relying on Machinery

If your business would encounter serious operational problems without a piece of equipment, you probably need equipment breakdown insurance. Mechanical and electrical breakdowns are unpredictable and expensive to deal with. Equipment downtime could cost you thousands of dollars each hour an equipment remains broken.

Common Scenarios Requiring Coverage

Here are some common scenarios where equipment breakdown insurance can help your business save a significant amount of money.

• Broken freezer
• Short circuited appliance
• Manufacturing machinery breakdown
• Office losing access to servers due to machine breakdown

How to Source Equipment Breakdown Insurance

Assess Your Business Needs

Companies need to first assess their risk factors and needs when buying insurance. For equipment breakdown insurance, this means considering your insurance budget and equipment value. Evaluate which equipment needs coverage.

Insurance isn’t a once-and-done type of financial protection. Make sure you update your business insurance as you expand, install new equipment, or change business operations.

If you have any specific equipment that poses a financial risk, make sure it is adequately covered. Some policies have coverage limits for specific payout types for certain types of damaged equipment. For example, a policy with a $2 million total coverage limit may only pay out up to $1,000 on broken computer equipment.

Always read insurance terms and conditions carefully when purchasing equipment breakdown insurance or any type of insurance solution.

Consulting with Insurance Brokers

It can be helpful to work with experienced insurance brokers who understand the needs of businesses and the risks of equipment. Businesses, both small businesses and large enterprises, can consider working with commercial insurance brokers to find specialized insurance for your industry.

Comparing Quotes

It’s crucial to shop around and compare policies before committing to a commercial insurance product. Here are key points of consideration for equipment breakdown insurance:

Coverage Limit: The policy limit refers to the maximum amount of coverage you can receive. Consider your asset value, sector, and nature of business. Companies with expensive equipment may want coverage of at least $1 million.

Insurance Company: Some insurance companies have better claims processes and reliability than others. Choose yours carefully.

Equipment Condition: The type, age, value, and condition of your equipment will affect the insurance premiums.

Evaluating Insurers

Don’t settle for the cheapest equipment breakdown insurance policy. Businesses should take the time to assess and select an insurer based on reputation, coverage limit, financial stability, claims handling, and industry expertise. Check online reviews and customer testimonials to see which insurance provider best suits your needs and expectations.

If you operate in a certain sector, it may be better to obtain equipment breakdown insurance specifically for your industry. This may hasten the claims handling process and provide better coverage.

Bundling with Other Insurance Policies

Bundling equipment breakdown insurance with other policies is a good way to obtain better coverage and enjoy cost savings. Popular bundles include purchasing equipment breakdown insurance along with general liability insurance, property insurance, and/or a business owner’s policy (BOP).

Check out our expertly ranked best business insurance companies.

Claims Process for Equipment Breakdown Insurance

Steps to File a Claim

Gather documentation

Document all the damages and equipment failures. Take notes and photos of what equipment broke down, the time and circumstances of the situation, and how this failure impacts your business.

Contact your insurance company

To file a claim, follow your equipment breakdown insurance company’s instructions. This may mean submitting a claim and supporting evidence through your insurer’s online portal.

Wait for a decision

Before replacing or repairing your equipment, you might need to wait for a response from your insurance company first. For equipment breakdown claims, they may need to verify your claim and evaluate the validity of the damages.

Common Pitfalls in Claims

Lack of proper documentation of the broken equipment poses a serious obstacle. Insurance companies need sufficient proof of the type of breakdown and value of lost assets.

Businesses and insurance companies don’t always see eye to eye on equipment breakdown claims. If you disagree with the result of an insurance claim, especially for a costly equipment breakdown, you may want to dispute the claim result. It is a good idea to consult with an attorney who is an expert in business insurance before pursuing a dispute. They can provide valuable guidance for your situation.

Tips for Successful Claims

If your business has a streamlined way to deal with insurance claims and potential equipment breakdowns, it can facilitate the claims process and ensure smoother claims experiences.

• Understand policy terms ahead of time
• Keep regular maintenance records
• Take photos and note down details of any equipment incidents

Maintenance and Prevention Tips

Regular Equipment Maintenance

The routine maintenance of equipment can help minimize the likelihood of breakdowns and issues. To do this, employ effective preventive maintenance. Employees should know the warning signs before equipment breaks, and a crew should routinely perform a maintenance check on crucial equipment.

Maintenance (and compliance) will vary based on sector and business operations. Usually, it means:

• Routine inspections by trained personnel
• Cleaning
• Servicing
• Adhering to manufacturer's instructions
• Don’t overwork the equipment
• Being proactive, not reactive

Employee Training

Relevant staff should be properly trained in equipment use for safety. Human errors can lead to equipment failure, but good training can reduce the frequency and impact of operator errors.

Monitoring Systems

Early detection of potential machinery issues can prevent a lot of expenses and problems. Companies should use monitoring and diagnostic tools to detect needs for repair before equipment failures exist. Options include:

• Sensor solutions
• Vibration monitoring
• Temperature monitoring
• Software and analytics for equipment monitoring

Conclusion

Equipment breakdown insurance can prevent your business from sinking resources and time in equipment repairs and replacement. It can also help you recover more quickly from any disrupted operations due to broken equipment. Commonly covered equipment include:

• HVAC systems
• Manufacturing machinery
• Elevators
• Refrigeration units
• Company computer servers

As with all commercial insurance solutions, businesses should evaluate their own equipment risks and needs when considering equipment breakdown insurance. It can be a useful part of a company’s overall risk management strategy.