As a manufacturing business, your equipment is your livelihood. Musicians have their instruments, writers their pens, pencils, or computer keyboards, and manufacturers have their equipment. Without it, you run into the same trouble a musician would when stepping on stage with a broken guitar: no output, no performance, and a disgruntled audience.
That’s why we’re here to help you understand the ins and outs of commercial equipment breakdown coverage, what it does and doesn’t cover, and how it can help your manufacturing business when times get tough.
What Is Equipment Breakdown Coverage?
An optional part of a business insurance policy, equipment breakdown coverage (sometimes referred to as business equipment insurance or mechanical breakdown insurance) is designed to help a business cover the costs of repairing or replacing damaged equipment. The caveat: the equipment breakdown must be the result of a covered incident.
You can get this type of coverage as a standalone policy or through a Business Owner’s Policy (BOP). For a manufacturing business, commercial equipment breakdown coverage is a vital add-on, as it covers equipment necessary for your business to function, like boilers and machinery, computers, security systems, and even office air conditioning.
What Exactly Does Equipment Breakdown Insurance Cover?
Equipment breakdown insurance will help you pay for the following:
- Equipment repairs after a covered incident.
- The additional cost of temporary repairs or rush repairs.
- Business income lost as the result of broken or malfunctioning equipment.
- Property damage liability costs.
- Mandatory inspections of essential equipment.
The five categories of equipment that equipment breakdown insurance typically covers include:
- Mechanical. This includes engines, motors, generators, elevators, water pumps, and specialized production and manufacturing equipment.
- Electrical. This includes transformers, electric panels, and cables.
- Computers and communications. This includes computer systems, phone systems, voice mail systems, security systems, and fire alarm systems.
- Boilers and pressure equipment. This includes fire-tube, water-tube, sectional boilers, and more.
- Air conditioners. This could include office air conditioning systems and refrigerators.
What Isn’t Covered In Equipment Breakdown Coverage?
Equipment breakdown coverage does not include equipment breakdown or malfunction due to normal wear and tear. For instance, old equipment that isn’t under warranty is not covered by this insurance policy. However, equipment breakdown resulting from a power surge or part failure is covered.
What’s the Limit of Equipment Breakdown Coverage?
Equipment breakdown coverage does have a limit. The coverage is dependent on the maximum amount your policy will pay for a covered claim. When you exceed that limit, you’re responsible for anything that exceeds your coverage.
Note: it’s always important — no matter the coverage — to ensure you’re fully covered. If you’re not insured for the full value of your contents, you could be subject to something known as a coinsurance penalty.
Coinsurance is a charge imposed on the insured for underreporting/underinsuring the value of their business property. The penalty is calculated based on a percentage stated within the policy and the amount underreported. To avoid this, make sure you know exactly what type of insurance plan your business needs, and the extent of the coverage.
At Robertson, we sit down with you and get to know your business so we can create a plan custom for your needs. This means you don’t have to worry about coinsurance charges or anything unexpected. By doing so, we remove the gray areas of insurance and help you better understand the ins and outs of your policy and what you need, and why.
How Much Does Commercial Equipment Breakdown Coverage Cost?
The exact cost of equipment breakdown insurance depends on whether it’s a stand-alone policy or part of a BOP. Other factors include your business’s size and the type of equipment you use.
If you add equipment breakdown insurance to a BOP plan, you may receive a price break, since you’re bundling it with general liability and commercial property insurance.
Does Commercial Property Insurance Cover Equipment Failure?
Commercial property insurance covers damages from outside causes, such as fire damage. Equipment breakdown coverage deals with damages caused by covered internal forces — like power surges, electrical shorts, mechanical breakdowns, motor burnout, or operator error.
Also, while commercial equipment breakdown coverage includes computers, it does not cover software. To fully ensure your computer systems are covered, you’ll need to add cyber liability insurance (if you don’t already have it) to your commercial insurance plan.
Equipment Breakdown Coverage vs. Boiler and Machinery Insurance
If you’ve done any research so far, you may have heard of boiler and machinery insurance alongside equipment breakdown insurance. The latter is the newer form of this type of insurance.
Boiler and machinery insurance was first introduced when steam boilers were a major source of industrial power. Since most businesses today use electricity to operate their broad range of equipment, equipment breakdown coverage has become the standard.
How Manufacturing Businesses Can Benefit from Commercial Equipment Breakdown Coverage
As a manufacturing business, you rely on your equipment and machinery more than many other types of businesses. If your equipment fails due to the motor breaking or a power surge, you need to have a plan in place to have the equipment repaired or replaced as soon as possible. The four main benefits of insurance for manufacturing equipment include:
- Repair cost coverage. You may have to pay thousands of dollars after a breakdown just to get back up and running. Equipment breakdown insurance helps you get back on your feet by reimbursing your business for the cost to repair or replace the equipment.
- Expediting expenses. Repairing complex equipment is an expensive endeavor, but sometimes you need to get the machine functioning enough until you can get a full replacement. Equipment breakdown insurance can cover the cost of temporary repairs until you get a replacement, according to the National Association of Insurance Commissioners (NAIC).
- Protection against business interruptions. Equipment failure is likely to disrupt your business. And these disruptions can cause a loss in revenue and productivity. Equipment breakdown coverage can cover some of these costs and protect you until the equipment is repaired or replaced.
- Perishable goods coverage. Especially if you’re a manufacturing business dealing with food-related services, you know the importance of protecting perishable goods. Food industry equipment is expensive to repair and replace, but you could also lose thousands of dollars worth of product if you don’t have a contingency plan when a refrigerator or freezer fails. Equipment breakdown coverage can help with this.
Additional Insurance for Manufacturers
In addition to equipment breakdown coverage, be sure your business insurance plan consists of the following:
- Manufacturing property insurance
- Intellectual property coverage
- Business income insurance
- Manufacturers E&O insurance
Read our blog Insurance for Manufacturers to dive even deeper into the different types of manufacturing business insurance available to you.
What Other Types of Businesses Should Have Equipment Breakdown Insurance?
Essentially, any organization that relies heavily on income that could be disrupted by an equipment breakdown should consider adding this type of insurance to their existing coverage. This includes the following:
- Tech companies
- Convenience stores
- Local governments
- Shopping Centers
The Importance of Peace of Mind
At the end of the day, a comprehensive insurance plan is about protecting you from all the what-ifs and giving you peace of mind. Don’t allow all of the different types of coverage to overwhelm you. It’s all here for a purpose, and finding the right plan will help you forget about your insurance so you can focus on your business — something we’re here to help you with.