What is equipment breakdown coverage?
Last updated: December 2021
Equipment breakdown coverage is an optional part of a business insurance policy that may help pay for the costs of repairing or replacing damaged or broken-down equipment after a covered incident. Equipment breakdown insurance may help cover equipment that's necessary to keep your business running, such as boilers and machinery, or even office air conditioning, computers and security systems.
What does equipment breakdown insurance cover?
Equipment breakdown insurance may help pay for:
- Repairs after a covered incident
- The extra cost of temporary repairs or rush repairs
- Lost business income due to broken-down equipment
- Property damage liability costs
- Mandatory inspections of key equipment
Depending on your policy, covered incidents might include power surges, short circuits, mechanical breakdowns or motor burnouts. Coverage may also help pay to replace perishable goods. For example, if a refrigerator at your catering company breaks down, equipment breakdown coverage may help with the costs of replacing the food that spoiled.
Temporary or rush repairs
The National Association of Insurance Commissioners (NAIC) notes that coverage may also help protect you against the cost of making temporary repairs to your equipment, or the extra cost of speeding up repairs. This can help minimize the time a business may be forced to shut down as the result of an equipment breakdown.
Lost business income
If critical equipment breaks down and you can't run your business normally, equipment breakdown coverage may help reimburse you for lost business income. The International Risk Management Institute (IRMI) notes that a claim for loss of business income has to be thoroughly documented.
If an equipment breakdown causes an interruption to your business, that interruption generally has to continue for a period of time before coverage for lost income kicks in.
Property damage liability
Equipment breakdown coverage may provide liability protection if a breakdown or accident causes damage to others, according to the NAIC. For example, if a piece of equipment malfunctions and damages someone else's property, equipment breakdown coverage may help protect you against liability costs to the owner of that property.
Coverage may include the cost of mandatory inspections of key equipment. A thorough inspection may help prevent problems before they arise.
To learn what specific protections your business equipment breakdown coverage provides, read your policy carefully or ask your insurance agent.
What might not be covered?
Ordinary wear and tear on equipment is not typically covered by equipment breakdown insurance, says the Insurance Information Institute. If your equipment stops working because it's badly maintained, or if it's just old and needs to be replaced, your insurance probably won't cover that cost.
Finally, equipment breakdown coverage has a limit, which is the maximum amount your policy will pay for a covered claim. You are responsible for paying out of pocket costs that exceed your coverage limit. Also, you may be subject to a coinsurance penalty if you are not insured for the full value of your contents. (According to IRMI, your insurer may require you to have coverage for a certain percentage of what your business property is worth. If you do not have that amount of coverage, you may be subject to a penalty and have to pay more out of pocket when filing your claim.)
If your business could suffer in the event of an equipment breakdown, this optional coverage may be a good choice. Your insurance provider can help you understand what your policy covers and whether your business may benefit from additional protections such as equipment breakdown coverage.