What is equipment breakdown coverage? As the name suggests, it’s a specialized policy to shield businesses from unexpected and potentially catastrophic costs of repairing or replacing damaged equipment. In the rapidly advancing technological age, businesses rely heavily on equipment to run daily operations, which calls for a business insurance strategy upgrade.

This coverage type often covers damages due to mechanical failure, electrical breakdown, operator errors, or even power surges, ensuring businesses can swiftly get back on track after any unforeseen mishaps. And that’s precisely why we at Old Harbor decided to spotlight it and explain what this add-on is all about. 

Definition And Scope Of Equipment Breakdown Coverage

Equipment breakdown coverage, or boiler and machinery insurance, covers the sudden and accidental breakdown of a business’s mechanical, electrical, and computer equipment. This coverage often includes machinery, computers, data processing equipment, air conditioning and refrigeration systems, boilers, and pressure equipment.

This policy generally covers the cost of repairing or replacing the equipment, any property damage caused by the equipment breakdown, and any business losses resulting from the equipment breakdown, subject to policy limits and deductibles.

Even though they may seem similar, standard commercial property insurance and equipment breakdown coverage serve different purposes. The former typically covers damages from external forces like fire, theft, or natural disasters. On the other hand, the latter is exclusively designed to cover losses from internal causes like mechanical failure, electrical arcing, power surges, motor burnout, boiler malfunction, and operator error.

Key Features of Equipment Breakdown Coverage

Equipment breakdown coverage is a comprehensive policy designed to safeguard your business equipment from unexpected malfunction or damage. Below are the key features of this policy.

  • Mechanical Breakdown: One of the major coverage aspects of this insurance is mechanical breakdown. This typically includes sudden and accidental machinery breaking due to malfunctions, wear and tear, cracking, fracturing, or loss of lubrication.
  • Electrical Breakdown: It also covers the cost of damages caused by an electrical breakdown. An electrical breakdown could result from power surges, short circuits, arcing, or other electrical disturbances affecting the functioning of your equipment.
  • Operator Error: Human error is a common cause of equipment breakdown. This coverage usually includes damage caused by misoperations or employee mistakes while using the equipment.

Exclusions And Limitations

While equipment breakdown coverage is extensive, like all insurance policies, it has limitations and exclusions. This coverage does not generally protect against damages resulting from poor maintenance, intentional damage, or damage due to acts of nature like floods, earthquakes, or storms. Additionally, this policy usually does not cover general wear and tear over time or damages caused by rust or corrosion.

Typical Terms And Conditions

The terms and conditions of equipment breakdown coverage policies can vary from one provider to another. Usually, these policies cover repairing or replacing the damaged equipment, business income loss due to the equipment breakdown, expenses related to minimizing the business income loss, and the cost of temporary equipment.

It’s essential to thoroughly review and understand the terms and conditions before purchasing a policy. This includes understanding the policy’s duration, calculating premiums, renewal conditions, etc. Understanding these details can ensure you’re purchasing a policy that best fits your business needs and you’re not caught off guard when a claim is filed.

Claims and Settlements

Understanding the process of filing and settling an уquipment breakdown coverage claim. Here is a detailed review of the process.

Filing A Claim

In the event of a breakdown of a covered piece of equipment:

  1. Immediate Notice: Contact your insurance provider as soon as possible. The sooner you report the issue, the quicker the wheels can start turning to get your business back on track.
  2. Documentation: Gather and provide all necessary information to your insurance company, including details of the equipment, nature of breakdown, and any servicing records. Photos of the damaged equipment can also be helpful.
  3. In-house Checks: Perform a preliminary check to ascertain the extent of damage (if possible).
  4. Professional review: Depending on your policy, an insurance adjuster or a technical expert may visit your business establishment to assess the damage to the equipment.

Claim Settlement

Once the claim has been filed and verified:

  1. Assessing the Damage: An insurance adjuster will review the situation, ascertain the cause of the damage, and establish if it falls within the policy scope.
  2. Settlement Approval: If the claim gets approved, the insurance company will typically pay for repairing or replacing the damaged equipment and any other coverage stipulated in your policy, such as business income loss.
  3. Reimbursement: The reimbursement process can take a few weeks to a few months, depending on the claim’s complexity and the policy’s specific terms.

Claim Settlement Case Studies

Consider a case where a restaurant’s commercial freezer suddenly breaks down due to a mechanical issue. They had an уquipment breakdown coverage policy. The insurance company covered repairing the freezer once the claim was filed and assessed. They also compensated the restaurant for losing income when the freezer was out of commission.

In another instance, a small business experienced an electrical surge that damaged its computer system. As they had an equipment breakdown coverage that included an electrical breakdown, the insurer covered the cost of replacing the computers and even the revenue loss for the downtime.

It’s important to note that each claim is unique and will be treated as such by the insurer. The examples provided are merely illustrative and are not exhaustive.

Choosing the Right Equipment Breakdown Coverage

The right equipment breakdown coverage policy can significantly minimize the financial risks of unexpected equipment malfunctions. Here are a few key considerations when selecting a policy.

  • Coverage Limits: The policy’s coverage limit, which is the maximum amount the insurance company will pay for a single claim or all claims during a policy period, should align with the potential costs of repairing or replacing your business equipment.
  • Deductible Options: This is the amount you’d be responsible for paying before your policy benefits kick in. Policies with higher deductibles often have lower premiums, but you’ll need to ensure the deductible is an amount your business can afford to pay if necessary.
  • Specific needs of your business: Every business is unique with its risks and needs. Analyze the nature of your business, the type of equipment you use, and the associated risk. Tailor your policy to cover these specific risks.

When choosing an insurance provider, it’s essential to gauge its reliability. Consider factors like the company’s financial strength (you can check ratings by agencies such as A.M. Best or Standard & Poor’s), claim settlement history, customer service reviews, and the ease of their claims process.

The Role Of Independent Insurance Agents

But if all this seems complicated, independent insurance agents, like we at Old Harbor, can be tremendously helpful in navigating the market. We work with numerous insurance companies and have access to various policies. This lets us match your business with a policy that best suits its needs while guiding you through making a claim.

We can use our experience to ensure a fair and cost-effective deal. If you partner with Old Harbor, you don’t have to worry about the details, and you’ll only hear back from us when we find the most optimal coverage. So, if equipment breakdown coverage is something you’re actively seeking, you can get a quote now and provide that extra layer of protection. 

Frequently Asked Questions (FAQ)

Q: What is Equipment Breakdown Coverage?

  • A: It’s a rider to a standard homeowners insurance policy. It covers the cost of repairing or replacing major home systems and appliances that break down due to mechanical or electrical failure. This coverage is crucial since standard home insurance typically only covers damages from specified perils and does not include breakdowns of major appliances and systems​​​​.

Q: What Does Equipment Breakdown Coverage Include?

  • A: The coverage can vary between companies but commonly includes major appliances (refrigerators, ovens, washing machines, dryers), water heaters, HVAC systems, solar panels, sump pumps, computer equipment, home gym equipment, smart home systems, and food spoilage due to refrigeration failure. It covers losses from electrical, mechanical, and other failures that cause significant damage​​.

Q: Who Should Consider Equipment Breakdown Coverage?

  • A: This coverage benefits most homeowners, especially as home systems and appliances become increasingly complex and expensive. Before deciding on equipment breakdown coverage, homeowners should consider the replacement cost of their appliances and systems and any other existing coverage, like manufacturer’s and home warranties​​.

Q: Is Equipment Breakdown Coverage Worth It?

  • A: Given its relatively low cost, usually between $25 to $50 per year, equipment breakdown coverage can offer substantial financial protection for a minimal investment. It’s particularly valuable for homeowners with several high-cost appliances and systems. The decision to purchase this coverage should weigh the likelihood of needing it against the potential out-of-pocket costs if a breakdown occurs without the coverage​​.