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Equipment Breakdown Coverage Explained

Equipment is a necessity for many types of small businesses—whether you work out of a restaurant, office, manufacturing plant, or even your home. Therefore, when equipment doesn’t function properly, it costs your business precious time and money. Equipment breakdown coverage is a type of small business insurance that can protect your business from unexpected equipment failures.

Whenever you shop for business insurance, it’s important to make sure that you’re receiving well-priced coverage that’s tailored to your business’s needs. In this guide, we’ll explain what equipment breakdown insurance covers and doesn’t cover, how much it costs, and how and where to purchase a commercial equipment breakdown policy.

What Is Equipment Breakdown Coverage?

Equipment breakdown coverage, also known as boiler and machinery insurance or mechanical breakdown insurance, protects your business’s equipment in the case of sudden, accidental, and unexpected breakdowns.

This type of specialized insurance covers accidental or direct damage that commercial property insurance and warranties typically exclude—such as power surges, short circuits, and other mechanical or electrical breakdowns.

Overall, equipment breakdown insurance can cover:

  • The cost to repair or replace damaged equipment, including time and labor costs
  • Lost income
  • Damaged inventory
  • Other losses that result from equipment failures
  • Expenses incurred while equipment is repaired or restored

Equipment breakdown coverage is usually available as an add-on or endorsement to another insurance policy, like a business owner’s policy (BOP) or a commercial property policy—as opposed to being purchased as a completely separate policy.

what is equipment breakdown coverage

This example shows what an equipment breakdown coverage endorsement might look like. Image source: United Insurance Group

Do I Need Equipment Breakdown Coverage?

Put simply, any business that relies on equipment to generate revenue should consider purchasing commercial equipment breakdown coverage.

As we mentioned above, equipment breakdown insurance was traditionally called boiler and machinery (BM) insurance. Today, this term has faded from use as businesses rely on electricity instead of steam boilers—however, this type of insurance now offers protection for many different types of equipment, including high-tech equipment and modern office equipment.

Ultimately, the reason that equipment breakdown coverage is necessary for many businesses is twofold. First, many businesses don’t consider the additional costs that you incur when a piece of equipment breaks down. For example, if you run a restaurant and your refrigerator breaks down, the food inside might spoil.

As a result, you won’t be able to serve certain dishes from the menu and might lose revenue as a result. Equipment breakdown coverage can minimize your losses—covering not only the costs to replace or repair the refrigerator, but also the costs to replace your inventory and make up for lost income.

Second, many businesses don’t realize that certain types of equipment damage are not covered by other insurance policies. For instance, commercial property insurance protects your equipment from outside dangers, such as fires or storms—it doesn’t, however, protect against operator error, motor burnout, or accidental damage.

Similarly, equipment warranties usually only protect manufacturing defects. Therefore, commercial equipment breakdown coverage can be essential to protect your business from a number of losses that are experienced as a result of damaged equipment and that are not covered under other policies.

What Is Covered Under Equipment Breakdown Coverage?

The details of equipment breakdown coverage can vary based on the policy and provider, however, most policies cover the following six types of equipment:

  • Computers and communication equipment: Business phone systems, voicemail systems, fire alarm systems, and security systems
  • Mechanical and manufacturing equipment: Elevators, motors, engines, water pumps, assembly lines, and other specialized production or manufacturing equipment
  • Electrical equipment: Transformers, electrical panels, and cables
  • Central air conditioning and heating systems
  • Boilers and high-pressure equipment
  • Renewable and alternative energy equipment: Solar panels, solar systems, and generators

Again, whereas commercial property insurance protects your equipment from external forces, equipment breakdown coverage protects it from internal forces. Therefore, your commercial equipment breakdown coverage comes into play in the case of:

  • Power surges
  • Short circuits
  • Motor burnouts
  • Operator error
  • Loss of air pressure
  • Other mechanical or accidental breakdowns

What Isn’t Covered by Equipment Breakdown Coverage?

Like any type of business insurance policy, there are limits to what equipment breakdown insurance will cover. Here are a few examples of where equipment breakdown coverage will not apply:

  • Software systems: Computer hardware is covered, but software systems are not. You should purchase cyber liability insurance to protect software.
  • Ordinary wear and tear: Equipment failures that occur due to the equipment’s age or ordinary wear and tear are not covered by equipment breakdown insurance.
  • Natural disasters: Your commercial property insurance or specialized insurance, such as flood insurance, will cover equipment failures that occur as a result of fires, storms, explosions, and other natural disasters.
  • Vehicles and mobile equipment: Vehicles and other mobile equipment, such as food trucks and tractors, are generally not protected under equipment breakdown coverage. You can purchase separate commercial auto insurance to protect business vehicles.

All of this being said, you’ll want to keep in mind that commercial equipment breakdown coverage typically comes with a deductible and policy limits. Your coverage will kick in only after you’ve paid the deductible on a claim.

As an example, you might have a $250 or $500 deductible on $50,000 worth of coverage. In this case, if you experience an equipment breakdown, you’ll have to pay that $250 or $500 before the insurance company will cover your claim.

Additionally, if a claim exceeds your coverage limits, e.g. $50,000 in the example we just used, then you’re responsible for paying the overage out of pocket.

what is covered under equipment breakdown coverage

Commercial Equipment Breakdown Coverage Examples

Now that you have a better sense of what equipment breakdown coverage is and what it protects, let’s walk through a few examples to see how this type of insurance works in practice.

Repair and Replacement Example

The most obvious use case of equipment breakdown coverage is paying for the cost to repair or replace it.

For instance, if your computer breaks down, commercial equipment breakdown coverage will pay for a technician to diagnose and fix the problem. If you need to rent temporary equipment while your current equipment is being repaired, equipment breakdown insurance will cover the rental costs, as well. If the equipment failure is irreparable, then your policy will pay for you to purchase the same or a similar computer.

This being said, it’s important to note that depending on your equipment breakdown coverage policy, you might be reimbursed for the actual cash value of the equipment, minus depreciation. This means the longer you’ve used the equipment, the less of a payout you’ll receive. Alternatively, you might be reimbursed for the replacement value of the item, which is the amount of money it will take to buy new equipment with similar performance and features.

Lost Income Example

If your equipment fails and you lose business revenue as a direct result, your equipment breakdown coverage might be able to reimburse you for the lost income. However, the insurer might not accept your claim if you haven’t carefully documented your historical and projected revenues.

As an example, say a major power surge causes your manufacturing equipment to break down for an entire day. If you can clearly ascribe $5,000 of lost revenue to the outage, then you can file a claim with your equipment breakdown insurance carrier.

Regular Inspections Example

Sometimes, local governments require businesses to have boilers and food equipment regularly inspected to comply with safety standards.

Depending on your policy, commercial equipment breakdown coverage might reimburse you for the cost of these mandatory inspections. For instance, if you run a food truck, you may be subject to periodic inspections of the equipment inside the truck. If your equipment breakdown policy covers inspections, you can receive payment for the costs associated with these procedures.

Additionally, some insurance companies even have licensed inspectors on staff to perform the inspections.

Spoiled Inventory Example

Equipment failures can sometimes cause perishable inventory to spoil.

For example, if your restaurant’s refrigerator breaks down, the food inside could spoil. In these cases, equipment breakdown coverage can cover the losses.

Additional Equipment Failure Example

Although the examples we’ve reviewed so far are some of the most typical uses cases of equipment breakdown coverage, there may be other applications of this type of insurance.

For instance, if a key piece of equipment is damaged, you might need to pay a technician extra to expedite repairs. The equipment might result in data losses or environmental spills. The business insurance company will pay for these losses if they are covered in your commercial equipment breakdown coverage policy.

Cost of Equipment Breakdown Coverage

Most insurance companies link the price of equipment breakdown coverage to the value of the insured equipment. On an annual basis, it typically costs between $0.015 to $0.03 per $1,000 of equipment. For example, if you have $1 million worth of insured equipment, you might pay $15 to $30 per year for equipment breakdown coverage.  

Compared to other business insurance policies, the cost of equipment breakdown coverage is a small price to pay for the peace of mind of knowing that your equipment will be protected in the event that something goes wrong. Sometimes, supplemental types of coverage, such as coverage for spoiled inventory, will have a higher per-dollar cost.

This being said, the best way to get a specific price for equipment breakdown coverage is to request a quote from multiple insurance companies. As you’re shopping around, keep these factors in mind, as they will impact the cost of your coverage:

  • Total value of the insured equipment
  • Age and type of insured equipment
  • Deductible (a lower deductible translates to higher premiums)
  • Existence of perishable inventory
  • Age and condition of circuitry and pipes in the building

Best Equipment Breakdown Coverage Providers

As we mentioned above, insurers might sell equipment breakdown insurance as a stand-alone policy, but most often it’s added to a commercial property policy or business owner’s policy.

Therefore, if you already have property insurance or a BOP, you can check your policy forms for mention of equipment breakdown coverage (some policy forms might use the older term, “boiler and machinery insurance”). If there’s no mention of commercial equipment breakdown coverage, you can ask your insurer if you can add it to your current policy and certificate of insurance

This being said, we recommend that you purchase business insurance only from a carrier that is A-rated or higher by A.M. Best—a credit rating agency that ranks insurance carriers according to their financial stability.

If you’re looking for a place to start, you might consider these top equipment breakdown coverage providers:

The Hartford: Best for simple add-on coverage

The Hartford is an A+-rated insurance company. Although they don’t offer equipment breakdown coverage as a stand-alone option, they do offer this coverage as part of a BOP.  A BOP can be an affordable option for small business owners because you get multiple types of coverage in one policy, rather than paying separately for each type of coverage.

The Hartford’s BOP typically includes general liability insurance, commercial property insurance, and business interruption insurance—and on top of equipment breakdown coverage, you can also add endorsements for data breach coverage, as well as errors and commissions coverage.

To get started, you can either get a quote on The Hartford’s website or work with an agent.  

CoverWallet: Best for comparing options

As a business insurance marketplace, CoverWallet is designed for shopping around. You can request an online quote for equipment breakdown coverage after answering a few questions about your business.

You’ll instantly receive quotes from multiple insurers, and you can choose the one that offers the best price and most comprehensive coverage. There are multiple A-rated insurers on the CoverWallet platform, so you can find commercial equipment breakdown insurance that’s perfect for your business.

Hartford Steam Boiler: Best for businesses with unique equipment risks

Hartford Steam Boiler (HSB), a U.S. subsidiary of German-based insurer Munrich RE, is the largest provider of equipment breakdown coverage in North America. They have the highest possible A.M. Best rating of A++. They offer stand-alone equipment breakdown coverage as well as insurance that you can add to an existing commercial property policy or BOP. As a bonus, they even summarize the major equipment breakdown risks for different industries.

Since HSB specializes in underwriting equipment breakdown coverage, they are an especially good choice for businesses that might present more unique equipment risks. For example, businesses that own a lot of alternative energy or electrical equipment might do well with a specialty insurer like HSB. An HSB agent can give you a quote.

Travelers Insurance: Best for high-tech equipment coverage

Travelers Insurance is a great option for businesses that want to buy equipment breakdown coverage for high-tech equipment. They offer a special product called EnergyMax 21, which is one of the most comprehensive and future-looking equipment breakdown policies available on the market. 

For example, if you have irreparable equipment, Travelers will compensate you 125% of its replacement value to help you upgrade to newer technologies. They’ll also reimburse you an extra 5% on a covered loss to help you purchase environmentally sustainable alternatives to your current equipment. Travelers even has licensed inspectors on staff to keep your equipment running well. You can find a Travelers agent near you to get started.

Nationwide Insurance: Best for customer service

Nationwide is an A+-rated insurer and our final recommendation for buying equipment breakdown coverage. Their commercial equipment breakdown insurance covers each of the different types of equipment we mentioned above.

You can buy the coverage on its own or add it as an endorsement to a Nationwide BOP. The BOPs are specialized for specific industries, such as retail, office, and foodservice. If you have questions about your policy, Nationwide has a 24-hour customer service phone line staffed with business insurance experts. You can get started with an online quote, or go through an agent who specializes in business policies.

The Bottom Line 

At the end of the day, if your business depends on equipment to generate revenue, you should consider investing in equipment breakdown coverage.

After all, as we’ve explained, far from the boiler and machinery policies of the past, today’s equipment breakdown policies provide broad protection for all types of equipment.

Plus, many insurers provide equipment breakdown coverage as an add-on or separate policy—so you should be able to compare multiple options in order to get the right business insurance coverage that fits your unique needs.

The post Equipment Breakdown Coverage Explained appeared first on Fundera Ledger.

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