How does equipment breakdown coverage work?

 August 16, 2021     UFG Insurance    Business  Read Time: 6 min

Man working on machine

As an insurance company, we employ teams of actuaries to calculate the probability of certain events occurring, so we know that equipment breakdowns happen all the time in business. 

As a small business owner, you know your most critical piece of machinery could go down at the absolute worst time. 

Maybe you have a huge order to fulfill or you’re fueling up the burger truck for that yearly food festival — that’s always when your production machinery or grill decides to take the day off.

Equipment breakdown coverage can’t smooth over a missed deadline or bring lost customers back but it can help cover the costs of repairing or replacing your equipment, as well as the income lost from your downtime — now averaging around $5,000 for a restaurant-related breakdown, according to global reinsurer Munich RE. 

But what if you don’t produce something tangible with a piece of equipment? Does equipment breakdown insurance still make sense for your business?

What is equipment breakdown coverage? 

Traditionally known as boiler and machinery insurance, modern equipment breakdown insurance covers a wide range of business tools. It can also cover the cost of repairing any other property damaged by the covered equipment’s breakdown (such as when a broken washer floods a communal laundry room). 

Insured items can vary greatly but typically fall into one of five categories: 
  • Mechanical, such as motors, engines, generators, pumps and specialized manufacturing equipment.
  • Electrical, including transformers, electrical cables and panels.
  • Air conditioners, refrigerators and HVAC systems.
  • Boilers and pressure equipment.
  • Computers and communications equipment, including business networks, voice mail and security alarm systems. 

Equipment breakdown coverage can be customized to a company’s particular needs, and often covers lost business income due to equipment failure. Depending on the policy, it may also cover extra expenses incurred to keep the business operational, or inventory that spoiled while a refrigerator was out of order. 

That makes equipment breakdown insurance suitable for a wide range of businesses and organizations, including: 
  • Distributors and logistics.
  • Manufacturers.
  • Real estate businesses.
  • Retail stores.
  • Restaurants.
  • Schools and religious institutions.
  • Warehousing.

How does it differ from property insurance? 

Your business’s property policy is meant to cover your facilities and equipment from external events like fires, vandalism and storms. Equipment breakdown insurance, meanwhile, is a subset of property coverage that covers internal events, or those that begin within the equipment, like mechanical breakdowns, explosions or electrical surges. 

Note that equipment breakdown coverage isn’t designed to take the place of a warranty or regular maintenance. Most policies exclude: 
  • Normal wear and tear.
  • Rust or corrosion that leads to the damage. 
  • Faulty or defective maintenance. 
  • Any sort of programming or calibration error. 

Equipment breakdown coverage also does not protect against software malfunctions, cyberattacks or theft of your data. For that, you’ll need a cyber liability insurance policy. 

Finding equipment breakdown insurance 

The cost of equipment breakdown insurance can vary widely, depending on the insured company’s industry, size and the value of the equipment being covered, among others. Premiums have been on the rise while coverage options have tightened in recent years, as business equipment grows more complex and expensive to fix. Companies will need to be flexible when it comes to obtaining this special line of insurance. 

Your independent agent can work with you to secure equipment coverage that’s right for your business. Like other kinds of business insurance, equipment breakdown coverage can typically be purchased as a standalone (monoline) policy or added as an endorsement to a businessowners policy (BOP). 

Reach out to an agent today to discuss how you can protect your equipment and maximize your company's uptime. 

The information provided is for informational purposes only. Every attempt is made to ensure that the information is accurate; however, it is not intended to replace professional advice. For more information, see Disclaimers & Other Legal Documents.