Published: October 2015
Practically every business depends on equipment, from heating and air conditioning, to alarms and security, to computers and phones. If any of these things break down, it may affect your ability to run your business — and hurt your bottom line.
Equipment breakdown insurance may help provide some protection. Equipment breakdown coverage is an optional protection that may be added to a commercial property insurance policy, according to the Insurance Information Institute (III).
Equipment breakdown coverage may help protect your business from damage to many kinds of equipment, according to the International Risk Management Institute (IRMI). If your business's equipment is damaged or breaks down in an accident, this coverage may help with the cost of replacement or repair.
Coverage may extend to equipment such as boilers and machinery, but may also include office air conditioning, computers, and security systems — potentially, any equipment that your business needs to keep running.
Depending on your policy, covered incidents might include power surges, short circuits, mechanical breakdowns, motor burnouts, or even operator error. Coverage may also help you replace perishable goods such as spoiled food.
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 to minimize the time a business may be forced to shut down as the result of an equipment breakdown.
According to the IRMI, equipment breakdown coverage may help protect your business from financial loss associated with the failure of equipment.
Lost business income: If critical equipment breaks down and you can't run your business normally, equipment breakdown coverage may provide for lost business income. The IRMI notes that a claim for loss of business income has to be thoroughly documented.
As InsureU explains, 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.
Liability protection: Equipment breakdown coverage may also provide liability protection, if a breakdown or accident causes damage to others, according to the NAIC. For example, if a piece of equipment explodes and damages someone else's property, equipment breakdown coverage may help protect you against any liability to the owner of that property.
Mandatory inspections: Finally, coverage may include the cost of mandatory inspections of key equipment. In 48 states, for example, pressure vessels must be inspected. A thorough inspection may also 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.
Ordinary wear and tear on equipment is not typically covered by equipment breakdown insurance, says the III. 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 is generally subject to limits. It will only cover losses up to the maximum amount specified in your policy.
If your business could suffer in the event of an equipment breakdown, this optional coverage may be a good choice. A business insurance agent can help you understand what your policy covers and whether your business may benefit from additional protections such as equipment breakdown coverage.