In business, unforeseen events and accidents can disrupt operations, leading to costly repairs, downtime, and financial losses. Breakdowns can be particularly devastating when it comes to the intricate machinery and equipment that power our industries. Whether you operate a manufacturing facility, a restaurant, a technology firm, or any other business reliant on specialized equipment, safeguarding your assets is crucial. This is where equipment breakdown insurance comes into play.
While most business owners are familiar with property and liability insurance, the concept of equipment breakdown insurance may be relatively unknown.
In this blog, we will examine the key aspects of equipment breakdown insurance, including its definition, coverage scope, and the types of equipment typically protected. We will also discuss the benefits it offers to businesses, explore real-life scenarios illustrating its importance, and address some common misconceptions surrounding this specialized form of insurance.
What Is Equipment Breakdown Coverage?
In the event of an unexpected failure, equipment breakdown coverage covers damage to your company’s property and equipment. It is usually included in your commercial property insurance, which can be purchased as a standalone policy or with your business owner’s policy.
Equipment failure in businesses accounts for 42% of unplanned downtime costs. Therefore, equipment breakdown coverage is an extremely important facet of commercial insurance coverage, especially for small businesses. It is also commonly referred to as boiler and machinery insurance or mechanical breakdown insurance.
Equipment breakdown insurance is designed to secure your organization’s computer systems, mechanical systems, electrical systems, and appliances.
How Does The Equipment Breakdown Insurance Work?
Here’s an example to illustrate how equipment breakdown insurance works:
Let’s say you own a manufacturing company that heavily relies on a complex production line, which includes various machinery and equipment. A critical component in your main machine fails due to a power surge, resulting in a complete shutdown of your production line. As a result, you cannot fulfill customer orders, leading to significant financial losses.
If you have equipment breakdown insurance, you can file a claim with your insurance provider. The insurance company will send an inspector to assess the situation and determine the cause of the breakdown. Once it is confirmed that the breakdown is covered by your policy and not due to normal wear and tear or excluded circumstances, the insurance company will provide compensation.
The compensation you receive may cover several aspects, including the cost of repairing or replacing the damaged equipment, the loss of income during the downtime, and even additional expenses incurred to expedite repairs or mitigate business interruption.
Equipment breakdown insurance not only applies to large industrial equipment but can also cover a wide range of equipment used in different industries, such as air conditioning systems, refrigeration units, electrical systems, computer systems, and even smaller devices like office equipment or kitchen appliances.
Why Do I Need Equipment Breakdown Insurance?
Equipment breakdown insurance can be extremely useful for business owners as it offers coverage for issues that are often excluded by other types of business insurance.
Your commercial property insurance is designed to cover the premises and company property if they are damaged due to external incidents, while business interruption insurance covers income lost due to such an incident. Neither policy extends to cover equipment malfunctions and mechanical failures, and that’s where equipment breakdown insurance comes in.
What Does The Insurance Cover?
Equipment breakdown insurance covers damage to various machinery and equipment in case of damage or failure. Coverage usually extends to the following systems:
- Industrial boilers
- Telephones and computers
- Electric transformers and cables
- Escalators and elevators
- HVAC systems
- Manufacturing machinery and equipment
- Engines, electric motors, and water pumps
- Production systems, including machining tools, food processing equipment, and robotic equipment
- Refrigeration systems
- Retail point-of-service devices
- Security systems
- Fire alarms
Over and above the expenses for the repair or replacement of the systems mentioned above up to the policy limits, insured parties are also covered for the following losses:
- Lost income [1]
- The cost of urgent or temporary repairs
- Damage to a third party’s property caused by the breakdown
- Expenses related to equipment inspections that may be required after a breakdown
Equipment breakdown insurance policies from certain insurance providers also cover the following expenses that come about due to an incident that is covered by the policy:
- Expenses associated with building code compliance
- Demolition costs
- Related expenses, such as the cost of temporarily renting equipment
- Lost income if it becomes necessary to sell damaged merchandise at a lower price than its full value
- Damaged portable equipment and machinery occurring away from the business premises
- Lost income and additional expenses brought on by the failure of contracted equipment
Who Should Buy Equipment Breakdown Insurance?
Equipment breakdown insurance is particularly useful for businesses that can expect to see a significant disruption of income in the event of an equipment failure. These may include:
- Manufacturers
- Tech companies
- Restaurants
- Supermarkets
- Local governments
- Schools
- Hospitals
- Hotels
- Churches
- Retail establishments
- Shopping centers
Equipment Breakdown Coverage Examples
Equipment breakdown insurance safeguards business owners against financial losses resulting from equipment failure caused by internal issues. A machine breakdown, short circuit, or power surge could lead to equipment failure.
Here are three examples of equipment breakdown coverage scenarios:
Manufacturing Equipment
Imagine a manufacturing facility that heavily relies on complex machinery to produce its goods. One day, a critical component within a key production machine fails, rendering it inoperable. The resulting equipment breakdown coverage would not only cover the cost of repairing or replacing the damaged component but also reimburse the business for the lost income during the downtime. This coverage ensures that the manufacturing facility can promptly resume operations without significant financial setbacks.
Commercial HVAC System
Consider a commercial building with a sophisticated heating, ventilation, and air conditioning (HVAC) system. Suddenly, the HVAC system breaks down due to an electrical malfunction, leaving the building without proper temperature control. In this case, equipment breakdown coverage would fund repairing or replacing the damaged HVAC system. Additionally, the insurance policy would compensate the business for any lost income during the period when the building cannot use or rent out due to the HVAC system’s lack of functionality.
Restaurant Kitchen Equipment
In a bustling restaurant kitchen, numerous pieces of specialized equipment are essential for the preparation and cooking of food. If a critical kitchen appliance, such as a commercial oven or refrigeration unit, experiences a mechanical breakdown, it can disrupt the entire operation. Equipment breakdown coverage would cover the repair or replacement costs of the malfunctioning equipment and reimburse the restaurant for any lost income and food spoilage during the downtime. This coverage helps restaurants maintain service quality and minimize the financial impact of equipment failures.
From vital machinery to complex electronic systems, equipment breakdowns can occur at any time, jeopardizing your productivity, profitability, and reputation. By understanding the fundamentals of equipment breakdown insurance, you can gain peace of mind and ensure that your business remains resilient in the face of unexpected challenges.
Conclusion
It is important for businesses to carefully review their policies to understand the scope of coverage, exclusions, deductibles, and any additional endorsements that may be necessary to tailor the policy to their specific needs. Businesses gain peace of mind with equipment breakdown insurance, as it protects them against unforeseen equipment failures and the accompanying financial consequences.
