When equipment breaks down that’s essential to your small business—like your restaurant’s refrigerators conking out after a power surge—it can be disruptive and costly. Equipment breakdown insurance can ease financial pain.
Here’s why it’s smart to include equipment breakdown coverage in your small business insurance.
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How Does Equipment Breakdown Insurance Work?
Equipment breakdown insurance (sometimes known as boiler and machinery insurance or mechanical breakdown insurance) is optional coverage for business owners. Generally, it helps pay for repair or replacement of equipment that suddenly is damaged or unexpectedly stops working altogether.
For example, the cause of the breakdown may be a short circuit that’s not covered by a standard commercial property insurance policy.
Equipment breakdown insurance covers internal malfunctions due to mechanical or electrical issues, such as:
- Electrical shorts
- Mechanical failures
- Motor burnout
- Power surges
It can also cover damage due to someone operating the equipment the wrong way.
Why Do I Need Equipment Breakdown Insurance?
Equipment breakdown insurance is important because it covers problems that other coverage types exclude.
For example, commercial property insurance generally doesn’t usually cover mechanical or equipment malfunctions. Commercial property insurance covers damage to your business property resulting from external incidents, such as fires, vandalism and wind.
The same goes for business interruption insurance—it wouldn’t apply in these instances because it helps you recover lost income after problems such as a fire.
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What Does Equipment Breakdown Insurance Cover?
Equipment breakdown insurance can cover an array of accidentally damaged or destroyed equipment. For business owners, equipment breakdown insurance typically covers items such as:
- Boiler systems
- Computers and phones
- Electrical cables and transformers
- Elevators and escalators
- HVAC systems
- Manufacturing equipment
- Motors, engines, elevators and water pumps
- Production systems like machining tools, food processing equipment and robotics
- Refrigerators and refrigeration equipment
- Retail point-of-service devices
- Security and fire alarm systems
Aside from paying for the repair or replacement of equipment covered by the policy—up to the policy limits—equipment breakdown insurance can also reimburse you for:
- Food spoilage
- Lost business income due to the breakdown
- The extra cost of temporary or urgent repairs
- Property damage liability, or accidental damage to someone else’s property caused by the breakdown
- Equipment inspections required because of the breakdown
Equipment breakdown insurance may also cover the following after an incident covered by your policy. For example, equipment breakdown insurance from Hartford Steam Boiler (HSB) covers:
- Additional cost for building code compliance
- Demolition costs
- Extra related expenses, such as equipment rentals
- Lost income if you choose to sell damaged merchandise for less than its full brand value
- Portable equipment damaged offsite
- Lost business income and extra expenses when contracted equipment fails
What Isn’t Covered by Equipment Breakdown Insurance?
Equipment breakdown insurance generally does not cover normal wear and tear. For instance, if your 20-year-old refrigerator simply gives out due to its age, equipment breakdown coverage won’t pay for a new one.
And, although equipment breakdown insurance covers computer hardware, it typically doesn’t cover software malfunctions, data theft or cyberattacks. To cover software, you’ll usually need to buy cyber liability insurance.
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Who Should Buy Equipment Breakdown Insurance?
Organizations that might want to consider equipment breakdown insurance include:
- Manufacturers
- Tech companies
- Convenience stores
- Restaurants
- Local governments
- Schools
- Hospitals
- Hotels
- Churches
- Retailers
- Shopping centers
For such organizations, equipment breakdown insurance may be particularly valuable if they rely heavily on income that could be disrupted by a breakdown.
Related: Restaurant Insurance
How Much Does Equipment Breakdown Insurance Cost?
Equipment breakdown insurance for businesses costs roughly $800 a year, according to Assured Standard, a company that sells business insurance.
Exactly what you pay depends on whether you buy a stand-alone policy or supplemental business owners policy (BOP) coverage, the size of your business and the type of equipment you have, among other factors.
A BOP packages together valuable coverage every small business should have: general liability insurance, commercial property insurance and business interruption coverage. But you can add more protection to your BOP by buying additional types of insurance, such as equipment breakdown insurance.
Adding equipment breakdown insurance to your BOP might result in a price break since you’re bundling it with your general liability and property insurance.
Tips for Buying Equipment Breakdown Insurance
When you’re shopping for equipment breakdown insurance, ask these questions before agreeing to purchase coverage:
- How much does the coverage cost?
- What is covered?
- What is not covered?
- What are the coverage limits?
- How much are the deductibles?
How To File An Equipment Breakdown Claim
If you have equipment breakdown insurance, here are some suggested steps to follow when you need to file a claim:
- Contact your insurance company.
- Review your equipment breakdown policy.
- Document the damage in writing, with photos and video.
- Leave the damaged equipment and parts in place, if possible, so insurance investigators can examine them.
- Try to protect the equipment from further damage.
- Compile documents and data for the claim.
