Equipment Breakdown Coverage: Cost, Coverage & Providers

Equipment breakdown coverage protects your business from the costs and loss of income resulting from sudden damage and malfunction of vital business equipment. This insurance includes coverage for furnaces, HVAC systems, refrigeration systems, diagnostic machines, and computer equipment. Small business insurance policies with elected equipment breakdown coverage typically start around $800 annually.

Equipment breakdown coverage is rarely talked about when purchasing business insurance policies which means it is often excluded. Most policies such as a Business Owner’s Policy offer equipment breakdown coverage for a small added premium. The cost of broken machinery is financially devastating to most businesses but doesn’t need to be with equipment breakdown coverage options.

Equipment Breakdown Coverage Providers

Equipment breakdown coverage can be purchased as an add-on to other policies or a standalone boiler and machinery policy. To fully insure your business regarding equipment breakdown coverage, you must have the actual equipment breakdown endorsement, utility interruption, and property business interruption coverage elected. Finding the best insurance carrier is imperative.

Top Equipment Breakdown Coverage Insurance Providers

1. The Hartford

The Hartford offers business owner policies that include general liability, business property, and business interruption customization including equipment breakdown coverage. Small-business owners who use The Hartford get an all-encompassing policy or customize several individual policies as needed.

The Hartford’s biggest risk appetite is for startups and small mom-and-pop businesses that serve local main street communities. It is an ideal equipment breakdown coverage provider for restaurants, butchers, and labs where refrigeration is essential to daily operations. These types of businesses can get complete coverage in one competitively priced insurance policy.

2. CoverWallet

CoverWallet is an online insurance broker that strictly covers business risks. It utilizes key insurance carrier partnerships along with proprietary technology to find small businesses’ the best possible price. As a broker, CoverWallet’s main focus is to help small-business owners understand their needs in simple terms and make the buying process as simple as possible.

CoverWallet is a broker that has carriers that cover both standalone boiler and machinery policies as well as endorsements for equipment breakdown insurance. Their online application allows you to build the quote and compare options in a few easy clicks.

3. Factory Mutual Global

Factory Mutual Global is an industry leader in specialty insurance lines that include boiler and machinery insurance, business interruption coverage, and cyber solutions. It has nearly 200 years of risk mitigation experience utilizing a proprietary program called FM Approved that independently tests products to ensure small businesses meet safety standards.

Factory Mutual Global offers equipment breakdown coverage that’s ideal for companies with large assembly and manufacturing lines. This specialty carrier can write standalone policies or combine coverage in a larger policy to cover multiple business risks.

4. Travelers Group

Travelers Group is the second-largest commercial insurance carrier in the United States and has a history of financial strength that gives it the capacity and appetite for increased risk with specialized coverage such as equipment breakdown. Travelers is capable of handling micro business policies or can create a standalone specialty policy for risks such as equipment breakdown.

Travelers Group has an appetite for many different types of risks but has particularly strong offerings for the health care and medical industries. Hospitals, care facilities, and diagnostic centers that have expensive equipment and serve large numbers of customers daily are ideal for Travelers.

5. Nationwide

Nationwide is a major property and casualty insurance company that provides both personal insurance policies and small business insurance policies. Nationwide offers equipment breakdown coverage as an endorsement to existing business owner policies.

Nationwide best serves technology companies where equipment breakdown coverage may need to be directly tied to a business property policy and cyber liability coverage. However, Nationwide doesn’t write standalone policies, so small business risks that are too large can still get a business policy but it will exclude equipment breakdown coverage.

What Equipment Breakdown Coverage Is

Equipment breakdown insurance covers both physical loss and financial loss when equipment is destroyed or damaged. It is a combination of both business property coverage and business interruption insurance. Most small-business owners need equipment breakdown insurance to cover the equipment they rely on to conduct business.

Types of equipment covered by equipment breakdown include HVAC systems, diagnostic machines, computers, copiers, refrigeration systems, generators, and any other system required for standard business operations. When elected as coverage options within an existing business insurance policy, there are a few areas to consider to make sure you have adequate equipment coverage.

What Equipment Breakdown Insurance Covers

Equipment breakdown insurance is meant to cover equipment the business needs to run. However, most equipment breakdown coverage is very specific in endorsements and doesn’t include utility interruption or business lost revenues. It only covers the machine repair and replacement. To be fully covered means making sure the policy contains the right coverage for all risks associated with business interruption.

Equipment breakdown insurance covers your business for losses associated with:

• Physical Damage: Replaces or repairs damaged or destroyed equipment
• Business Income: Provides payments for the loss of business income related to equipment breakdown and failure
• Service Interruption: Provides additional coverage if outside equipment failure results in utility interruption for the business (i.e., a transformer blows leading to a power outage)
• Perishable Goods: Replaces perishable goods spoiled such as refrigerated supplies as a result of equipment breakdown
• Extra Expense: Allows for repayment of costs from rented equipment allowing businesses to return to operations while equipment is being repaired or replaced
• Expediting Expense: Pays additional fees to process parts, deliver equipment, or expedite repairs

What Equipment Breakdown Insurance Doesn’t Cover

Equipment breakdown insurance typically excludes the following:

• Wear-and-Tear: Machines and equipment have an expected life span and any breakdown due to age or use is not covered
• Normal Maintenance: Business owners are expected to maintain normal maintenance and routine care for machines and equipment
• Leakage: Equipment leakage results from overcurrent trips with an unintentional electrical connection and can cause power surges
• Mobile Equipment: Forklifts, tractors, bulldozers, and other mobile machines are excluded even if they’re used for daily business operations
• Vehicles, Aircraft, and Floating Vessels: Any and all commercial vehicles, aircraft, and boats used for business purposes are also excluded from equipment breakdown insurance
• Domestic Water and Sewer Piping: All pipe systems used for source plumbing and drainage to sewers aren’t covered by equipment breakdown policies

While it is hard to imagine a company not reliant on computers or other equipment, service providers such as plumbers or a dog walker may not have equipment that’s critical to their operations. Review options with your insurance carrier to obtain the right coverage for your business needs.

Combining Equipment Breakdown and Other Coverage

Adding equipment breakdown coverage to an existing business insurance policy is a cost-effective method of protecting the business whether you own the equipment or not. When boiler and machinery insurance coverage is a standalone policy, it incorporates multiple business interruption losses in one policy. However, as an endorsement, equipment breakdown coverage is not as robust.

Equipment breakdown endorsements cover the damage resulting from internal forces, but not external forces such as fire or external power surge. For these risks, businesses need to make sure they have adequate fire coverage and the added utility coverage endorsement. Loss of income is another coverage option you need in order to insure you have proper protection. Without the latter endorsements, equipment breakdown may only pay for damage and repair.

Who Equipment Breakdown Coverage is Right For

Equipment breakdown coverage is a necessity for any business that relies on machines or equipment in the course of its daily work. It is critical not just to repair the equipment but to provide replacement income for the duration of time machines didn’t work. It is also a valuable component of any business interruption insurance plan.

Here are common examples of who needs equipment breakdown coverage:

• A manufacturer uses equipment to produce products.
• A small print shop needs copiers to work.
• A restaurant needs the refrigerators to remain fully functional.
• An IT company relies on servers and computers.
• A mechanic requires hydraulic lift to work on cars.

Equipment Breakdown Coverage Example

Landlords often need equipment breakdown insurance to cover machinery that’s affixed in their property, while tenants need it for their own equipment operations. For example, if a mechanic providing oil changes leases a shop, he is responsible for the lift but his landlord is responsible for the electrical. If the transformer blows and electricity stops throughout the building, the mechanic cannot use his lift and loses business.

In this case, the mechanic can’t charge the landlord for lost income but he can file a claim on his insurance policy. He may also suspend rent payments until the issue is fixed. The landlord can file a claim on his own equipment breakdown policy to get the transformer fixed and recoup any lost rent (his income).

Equipment Breakdown Insurance Costs

Equipment breakdown coverage costs are determined by the value of the equipment and the potential loss of income. Small-business owners save money when coverage is part of a bigger policy because the risk is already mitigated by other policy provisions such as fire loss or utility interruption.

Typical Equipment Breakdown Insurance Costs

*Utility interruption is an elected endorsement but doesn’t assign a value to the loss. Instead, it triggers the other coverage option values upon a power surge leading to damaged equipment or power loss leading to lost income.

Business Owner’s Policy (BOP)

The business owner’s policy is a policy that combines general liability, business property, and business interruption coverage into one convenient, often less expensive policy. Within the BOP, small-business owners have the opportunity to adjust coverage amounts in specific areas as well as opt in or waive specific coverage endorsements.

Equipment Breakdown Endorsement

A specific coverage endorsement in BOPs or business property insurance policies that covers the business for costs related to the repair or replacement of vital operations machinery. This endorsement alone often doesn’t cover the lost income from the machinery breakdown, but instead focuses on the equipment value and potential repair costs.

Utility Interruption Endorsement

Utility interruption coverage is an optional endorsement that triggers equipment breakdown and business interruption endorsements. Both equipment breakdown and business interruption are not automatically covered if the breakdown results from external utility interruption or power surges.

Business Interruption Endorsement

The business interruption endorsement pays the business for lost revenues, replenishment of perishable goods, and supplies in the event that equipment breakdown stops business operations. Where the equipment breakdown endorsement covers machines, business interruption covers the financial damage when required machines don’t work.

Equipment Breakdown vs Boiler and Machine Insurance

Equipment breakdown coverage was originally called boiler and machinery insurance and covered the costs to repair and replace damage to boilers and other machinery in offices and manufacturing plants. As technology evolved, so did boiler and machinery insurance, with insurance companies changing the common insurance term to equipment breakdown coverage.

For most small-business owners, equipment breakdown coverage is an additional coverage option or rider on Business Owner’s Policies. This insurance covers the repair or replacement of equipment and machinery as well as payment for loss of income resulting from equipment failure.

Warranties and Equipment Breakdown Insurance

Most new machines and equipment have warranty options included with the purchase and extended warranties available for purchase. These warranties cover the machine from manufacturer’s defects but not operator error or damage that might occur from use. Even covered warranty claims don’t pay for lost revenues and income, making equipment breakdown coverage extremely valuable.

Tips on Getting Equipment Breakdown Coverage

Some tips when getting equipment breakdown insurance include:

Confirm Lease Terms and Your Responsibilities

Most businesses have some reliance on equipment, even if it’s just computers. If your lease transfers building risks such as hot water heaters, furnaces, and air conditioning units, you need to expand coverage beyond your personal business property. Talk to your insurance agent and confirm that you are adequately covered for all potential property and equipment claims.

Prepare Your Revenue Statement

The income replacement portion of equipment breakdown coverage falls under business interruption risk. This risk category uses real income numbers with the intent of making you whole in the event of a failure ― not making you rich. It’s important to accurately report your income because understating it means you’ll only get the policy limit. Overstating it means you are paying premiums that won’t yield claim benefits.

Get Accurate Equipment Values

Know the value of your equipment and machinery. If a $30,000 claim arises for your equipment, you don’t want to be underinsured at only $15,000. As part of business property coverage, the premium is based on the value of your equipment. You don’t need an itemized list for the insurance company but you do need to have accurate information.

Equipment Breakdown Insurance Frequently Asked Questions (FAQs)

Determining whether you need a standalone equipment breakdown insurance policy depends on your unique business needs. If you have questions about equipment breakdown insurance, please visit our forum or drop us a comment below.

Is boiler and machinery the same as equipment breakdown insurance?

Boiler and machinery is the original term, and considered archaic, for equipment breakdown insurance. Both pay for the repair or replacement of damaged equipment a business relies on and pays for the financial loss during the downtime. Equipment breakdown has become the standard term and at its core covers a broader range of perils.

Does equipment breakdown cover wear and tear?

Wear and tear is not covered under equipment breakdown. Business owners are responsible for maintaining and routinely servicing machines and equipment. All machinery has a useful life span; when that is complete business owners are responsible for replacement. Equipment breakdown insurance pays for an unexpected and sudden breakdown.

What does equipment failure mean?

Equipment failure is the sudden stop of the machine’s normal operations. It can be temporary or permanent. Failure can result from mechanical failure, a stop or surge in power supply or other necessary utilities, failure or machine defects, or improper installation.

Bottom Line

Any business that uses equipment should consider equipment breakdown insurance. Most equipment is expensive to replace and the time a small business can’t operate because of equipment failure leads to lost revenues. Equipment breakdown coverage is a cost-effective solution that allows business owners to replace income, repair equipment, and keep their business moving forward.

The Hartford understands that equipment breakdowns can shut a business down and create a financial hardship on small-business owners. The endorsements in The Hartford’s business owner’s policy makes it easy to add the right coverage for equipment breakdown coverage. Online quotes are quick and easy to navigate.

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