What is equipment breakdown coverage?

By Allstate

Last updated: January 2024

Equipment breakdown coverage is an optional part of a business insurance policy offering support to cover repair or replacement expenses for damaged or malfunctioning equipment after a covered incident. The coverage may help protect vital business equipment, as boilers and machinery, or even office air conditioning, computers, and security systems.

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What does equipment breakdown insurance cover?

Equipment breakdown insurance provides coverage for a variety of scenarios:

  • Repairs after a covered incident
  • Extra costs associated with temporary repairs or rush repairs
  • Loss of business income due to affected equipment
  • Property damage liability costs
  • Mandatory equipment inspections

Covered incidents

Typically, covered incidents might include power surges, short circuits, mechanical breakdowns, or motor burnouts. Equipment breakdown coverage might extend to reimbursing costs for perishable goods or the food that spoiled as a result of the equipment malfunctioning.

Temporary or rush repairs

The National Association of Insurance Commissioners (NAIC) notes this coverage may also help protect you against the costs associated with making temporary repairs to your equipment, or the expense of expediting repairs. This can help reduce downtime if the business is forced to shut down as the result of an equipment breakdown.

Lost business income

If vital business equipment breaks down significantly impacting your normal business operations,, equipment breakdown coverage may help reimburse you for lost business income. The International Risk Management Institute (IRMI) recommends to provide thorough documentation when submitting a claim for loss of business income.

If an equipment breakdown causes a business interruption, it generally has to continue for a certain period before the coverage for lost income becomes eligible.

Property damage liability

Equipment breakdown coverage may provide liability protection if a breakdown or accident causes damage to third-party properties, 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.

Mandatory inspections

The coverage may include the expenses related to mandatory inspections for key equipment assisting in proactive problem prevention.

What might not be covered?

It's important to note that 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 poorly maintained, or if it's just old and needs to be replaced, your insurance probably won't provide coverage.

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. You are responsible for paying the costs exceeding your coverage limit. Additionally, there might be requirements for a certain level of coverage or coinsurance, impacting potential out-of-pocket costs at the time of filing a claim. For example, 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.)

Making Informed Decisions

Understanding the specifics of your equipment breakdown coverage is vital. Reviewing the policy or consulting your insurance agent can provide comprehensive insights into the protections offered and any additional enhancements your business might require.

If your business operations are vulnerable to equipment breakdowns, considering this optional coverage could prove beneficial. Engaging with your insurance provider enables a clearer understanding of coverage nuances and additional protective measures for your business's well-being."