Equipment breakdown can be devastating for a small business. Having the right Small Business Equipment Breakdown insurance is crucial to protect your company in the event of an unexpected equipment failure. This comprehensive guide will explain everything you need about equipment breakdown insurance, who needs it, what’s covered, and how to get the best policy for your small business.
Equipment breakdown insurance, also known as boiler and machinery insurance, is a type of commercial property insurance that covers damage to equipment from electrical and mechanical breakdowns. It can reimburse repair or replacement costs and lost income resulting from equipment failure.
For any small business that relies on machinery or technology, having equipment breakdown coverage should be a top priority. The consequences of being underinsured when critical equipment fails could be catastrophic.
In this guide, we’ll cover:
- What is equipment breakdown insurance?
- Why your small business needs it
- What equipment is covered
- Typical coverage and exclusions
- Costs of equipment breakdown insurance
- How to get the best policy
- Frequently asked questions
Table of Contents
What is Small Business Equipment Breakdown Insurance?
Small Business Equipment breakdown insurance protects businesses against financial losses caused by sudden and accidental damage to equipment. It covers short-circuiting, mechanical breakdown, boiler explosions, and electrical arcing.
This type of insurance is often included as part of a business owner’s policy (BOP) or commercial property insurance policy. It can also be purchased as a standalone policy.
Equipment breakdown insurance helps cover repair and replacement costs if critical equipment breaks down. It also covers lost income while your business is shut down due to an equipment failure.
For small businesses that rely heavily on equipment to operate, equipment breakdown insurance is critical coverage. It can differ between going bankrupt or recovering after a costly equipment failure.
Why Your Small Business Needs Equipment Breakdown Insurance
There are several important reasons why equipment breakdown coverage is especially crucial for small businesses:
It protects against expensive equipment repairs or replacement. Equipment like generators, production machinery, telephone systems, and computers can cost tens of thousands to repair or replace if damaged. Those unexpected costs could devastate a small business without enough capital reserves.
It covers income lost while repairs are made. If equipment failure shuts down your business operations, equipment breakdown insurance reimburses the income you lose during the disruption. This lost business income coverage is essential for any company that relies on machinery to function.
It helps avoid business interruption. With equipment breakdown insurance, repairs or replacements can be made quickly so your business operations aren’t halted for extended periods. This minimizes any potential loss of customers or revenue.
It covers supplementary expenses. Policies cover temporary rental equipment, expediting expenses to speed repairs, and any overtime pay required during repairs.
It applies to a wide range of equipment. Unlike warranties, which cover only specific equipment, breakdown coverage protects all electronic and mechanical equipment from damage – from phones to computers to production machinery.
For all these reasons, equipment breakdown insurance is a wise investment that could keep your business afloat after an unexpected catastrophe.
What Equipment is Typically Covered?
Equipment breakdown insurance policies are designed to be broad and comprehensive regarding the types of equipment covered.
Here are some examples of equipment commonly covered:
- Air conditioning and refrigeration systems
- Electrical panels, wiring, and power supply equipment
- Electrical motors
- Computers and telephone systems
- Security systems
- Fiber optic equipment
- Production machinery like lathes, mills, presses
- Manufacturing and fabricating equipment
- Pumps and compressors
- Industrial ovens and furnaces
- Elevators and escalators
- Diagnostic imaging equipment like MRIs and CT scanners
Policies also often cover plumbing, lighting, commercial kitchen equipment, medical equipment, etc. Most reputable providers offer protection for any type of electrical, mechanical, or pressure-driven equipment.
When shopping for a policy, it’s important to disclose all equipment your business relies on to the insurance company. This ensures everything critical is covered.
What Does Equipment Breakdown Insurance Typically Cover?
Equipment breakdown insurance is designed to get your business back up and running as quickly as possible after a mechanical or electrical failure damages equipment. Here are some of the costs typically covered by this type of insurance:
- Repairing or replacing damaged equipment. This includes paying for parts, labor, shipping, and installation. Policies cover the full replacement cost.
- Business income lost while repairs are made. Coverage for lost business income often lasts for 12 months from the date of the breakdown.
- Temporary rental of replacement equipment. If you need to rent a replacement machine while yours is repaired, rental costs are covered.
- Expediting expenses. Policies pay additional costs to expedite permanent repairs or temporary rentals so you can resume operations faster.
- Spoilage. Food spoilage caused by refrigeration/freezer failure is covered up to policy limits.
- Overtime pay. Extra payroll expenses for overtime during repairs are covered for up to 30 days typically.
- Code upgrades. If damaged equipment must be upgraded to meet current codes, that cost is covered.
Comprehensive equipment breakdown coverage saves you money in the long run because the insurance company shoulders the burden of unexpected costs from equipment damage.
Common Exclusions & Limitations
While equipment breakdown policies are broad, some limitations apply. Common exclusions include:
- Damage from natural causes like floods or earthquakes
- Losses due to equipment being improperly installed, maintained, or operated
- Damage caused by corrosion or deterioration
- Lighting filters, fuses, and batteries
- Loss from delay in rebuilding or repairing
- Equipment operated in unsuitable environments
- Equipment past its lifespan
Coverage may also be limited for certain types of equipment like turbines, pumps, motors, or transformers once they pass a certain age. It’s important to read the fine print to understand exclusions.
You can usually add additional coverage to your policy – for a higher premium – if you want protection beyond the standard exclusions and caps.
How Much Does Equipment Breakdown Insurance Cost?
Equipment breakdown insurance costs vary widely based on factors like:
- The value of equipment insured
- Types of equipment covered
- Amount of business income protection needed
- The risk profile of your industry
- Your claims history
- Deductible amount
Exact prices depend on the insurance company, your specific business, and the policy limits you choose. But generally, equipment breakdown insurance costs between $300 to $1,000 per year for $500,000 in equipment coverage.
To get an accurate quote for your business, it’s best to get quotes from multiple providers. Work with an insurance agent who can help you find the right equipment breakdown coverage at the optimal price.
Tips for Getting the Best Equipment Breakdown Policy
Follow these tips when shopping for equipment breakdown insurance:
- Take a full inventory of all equipment before getting quotes.
- Work with an agent experienced in business insurance.
- Ask about equipment lifespans – some older equipment may not qualify.
- Make sure income protection coverage equals your annual gross profits.
- Inquire about flood/earthquake coverage – can usually be added for a price.
- Ask about covering lapsed utility services like power failures.
- Raise deductibles to lower premiums if cash flow allows.
- Bundle with property or BOP policies for multi-policy discounts.
- Compare at least 3 to 5 policy quotes before deciding.
Buying the right equipment breakdown insurance tailored for your small business is well worth the investment. Following these tips helps ensure your company has protection that matches your risks and budget.
Frequently Asked Questions
What is the difference between equipment breakdown and boiler and machinery insurance?
Traditionally, boiler and machinery insurance only covered damage from boilers, pressure vessels, and production machinery. Equipment breakdown insurance expands coverage to all kinds of electrical and mechanical equipment.
Does my business property insurance policy include equipment breakdown coverage?
Most standard business property insurance policies do NOT include equipment breakdown coverage. It must be added with an endorsement. Don’t assume you’re covered – ask your provider to confirm.
What qualifies as a mechanical breakdown?
Mechanical breakdown coverage includes damage from part failures, defects, or faults in materials and workmanship. However, it does not cover failures due to gradual wear and tear or inadequate maintenance.
Does equipment breakdown insurance cover floods or earthquakes?
Standard equipment breakdown policies exclude damage from natural disasters like floods and earthquakes. However, additional endorsements usually can be purchased to add protection against these risks.
What happens if I underestimate the value of equipment when buying coverage?
Like any insurance, if you underestimate values when applying, your claim payouts will be capped at your chosen limits. Be sure to assess the full replacement value of all key equipment.
Is computer equipment like laptops and servers covered?
Yes, equipment breakdown insurance covers damage to all computer equipment, servers, and phone systems. Just be sure to provide complete inventories of IT equipment to your insurer.
How long is typical equipment breakdown coverage for lost income?
Most policies provide 12 months of coverage for lost business income from an equipment breakdown. Some policies extend that coverage for extra premium costs.
Can I insure old equipment close to the end of its useful life?
Insurers often limit or exclude coverage for equipment over a certain age, like turbines over 25. The older the equipment is, the less likely it is to qualify for coverage.
The Bottom Line
Equipment like machinery, computers, and phone systems are often the backbone of any small business operation. Because of their critical importance, unexpected breakdowns and failures can be catastrophic without the proper insurance coverage.
Protect your livelihood by understanding exactly how equipment breakdown insurance works. Take time to assess your specific risks. Work with an experienced agent to secure adequate coverage at a fair price.
With a comprehensive policy, you’ll have peace of mind knowing your business can rebound no matter what unexpected equipment crisis strikes. Safeguard your small business and avoid financial ruin by making equipment breakdown insurance a top priority.
Summary of Key Points:
- Small business Equipment breakdown insurance covers damage from electrical/mechanical failure. It reimburses for repairs, replacements, and lost income.
- Small businesses need to rely on machinery and technology.
- Coverage applies to various systems like HVAC, production equipment, computers, etc.
- Policies cover the cost of repairs, rentals, food spoilage, overtime pay, and lost profits during shutdowns.
- Exclusions involve natural disasters, improper maintenance, and normal wear and tear.
- Comprehensive coverage costs approximately $300 – $1,000 per year.
- Work with an agent to evaluate risks and build optimal policy.
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