Equipment Breakdown insurance
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It’s a common misconception that costs associated with equipment breakdowns are covered by your property insurance policy
What is equipment breakdown insurance?
It’s a common misconception that costs associated with equipment breakdowns are covered by your property insurance policy. While this is true for damage caused by external sources (floods, fires, weather), your property insurance policy will not cover damages due to internal sources. This is where equipment breakdown insurance comes in: it covers damage to your equipment caused by internal sources.
What are those internal sources of damage? Here are a few examples:
– An electrical breakdown
– A mechanical breakdown
– Explosions (from boilers, water, piping)
Equipment breakdown insurance (also called machinery breakdown insurance) is additional coverage that mitigates against losses incurred because of these issues with your company’s equipment. Without proper insurance coverage, your company could incur expensive replacement or repair costs and may even need to halt your operations while you try to control the situation. Equipment breakdown insurance gives you peace of mind that these mechanical issues will be financially covered and help limit the disruption to your operations caused by your equipment breaking down.
You run a restaurant and suddenly one of your electrical ovens stops working without warning. What do you do? You likely need to call a repairperson ASAP, hoping that the oven can be fixed quickly and inexpensively. Without equipment breakdown insurance, you need to pay for any repairs, or in the worst case scenario, a new oven, out of pocket. If you don’t have the cash available right away, this may even result in you having to close your restaurant while you work out a financing option.
With equipment breakdown insurance, the repairs or replacement cost, is covered off and you are able to pay for these repairs quickly, ensuring as little disruption as possible to your normal operations.
Who needs equipment breakdown insurance?
Another common misconception about equipment breakdown insurance is that it’s only necessary for large manufacturers, companies with many, large pieces of equipment. This is definitely not the case!
Almost all small businesses rely on some sort of equipment, be it digital, electrical or technical to run their day-to-day operations. Any small business that uses equipment is at risk of unexpected equipment breakdown and is a good candidate for equipment breakdown insurance to mitigate losses due to that equipment breaking down. Some small businesses that can benefit the most from equipment breakdown insurance include:
- Skilled tradespeople and contractors: Plumbers, roofers, carpenters and electricians are a few examples of tradespeople who use electrical tools and equipment on their job sites. These tools are crucial to completing their projects and are often expensive to repair or replace.
- Bakeries, cafes or coffee shops, restaurants: These businesses rely on electrical kitchen equipment to service their customers. This equipment often requires specialized servicing and can be very expensive to repair and replace. These establishments also rely on commercial dishwashers, cleaning equipment, air conditioners and heaters, which are all crucial to running their businesses successfully. Any damage to these pieces of equipment could cause a major slowdown in operations.
- Property managers, real estate owners: Security systems, air conditioners and generators are all key pieces of equipment that property owners and managers rely on to properly service their tenants.
But doesn’t a warranty cover the same thing?
Don’t be fooled into thinking your warranty covers everything! Usually when purchasing equipment for your business, the retailer offers some type of warranty. Warranties can be very helpful, but it is extremely important that you read the fine print and understand what exactly is covered in your warranty and what is not. Business owners often confuse a warranty with equipment breakdown insurance, assuming that a warranty will cover an issue that comes up over the warranty life. This is categorically not correct!
Warranties often do not cover operator errors, meaning that if damage occurs because of the individual operating the equipment, the manufacturer will not cover the cost of repairs or a replacement. Some equipment breakdown insurance policies cover these types of issues. In the same vein, it’s very important to understand exactly what is covered by not only your warranty but also your insurance policy, to ensure you are covered for all potential situations.
How much will equipment breakdown insurance cost?
Similar to other types of insurance, equipment breakdown insurance will vary based on each business’ unique situation. The following factors are typically considered when a broker develops a quote for your business:
- Your line of work and industry
- The type of equipment your company uses, including how much that equipment typically costs
- Your business’ past claims history
Contact your insurance broker to get a quote based on your company’s unique situation. As always, you should gather a few different quotes to ensure you are getting the best possible coverage to mitigate risks associated with your business.
When is the best time to buy breakdown insurance?
We strongly encourage all business owners to consider equipment breakdown insurance as soon as they purchase expensive equipment. After considering what is and is not covered in your equipment’s warranty, we suggest you then reach out to your insurance broker and understand your options for equipment breakdown insurance, to ensure you are covered as soon as the equipment is operating and you are not at risk of losses in case that equipment does malfunction or breakdown.
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Equipment Breakdown Insurance FAQ
This type of insurance is applicable to a wide range of equipment and machinery that is critical for business operations, including but not limited to the following types of equipment:
- Boiler and pressure vessels
- Production systems
- Computer and communications
- Renewable and alternative energy
- Air conditioning and refrigeration
Having equipment breakdown insurance is crucial for most businesses that own expensive equipment, including but not limited to:
- HVAC professionals
- Retail stores
- Coffee shops / cafes
The biggest difference between contents coverage and equipment breakdown coverage is related to issues caused by operator errors. Contents coverage will protect your property, including equipment, computers, machinery and your premises, in the event of damages caused by external factors (weather-related events, fires, water damage, floods). It does not however cover damages caused by operator errors. Equipment breakdown cover may protect you in such cases.
Warranties typically do not cover repairs or replacements caused by operator errors. This means that if damage to your machinery was caused by an employee error, the manufacturer will likely not cover the costs of repairs or replacement. Equipment breakdown cover may protect you in such cases.