What is Equipment Breakdown Insurance?

 By Diane Tait

If you own or lease a car, you’ve probably looked into roadside assistance.  This way if you ever run out of gas, blow a tire or have your car roll to a stop as the warning lights on your dashboard alert you to the fact that your engine needs service, you won’t be stranded on the side of the road.  If you own a business, did you know that the insurance industry offers a type of policy that covers you for unexpected equipment breakdowns that can bring your firm to a screeching halt? Originally offered to small manufacturers to keep them from getting derailed by unforeseen events like boiler failures and machinery breakdowns, the coverage has grown over the years to cover all kinds of businesses for everything from equipment breakdown and ruined inventory to additional expenses and lost income.

What does it cover? – Modern businesses rely on several key systems.  First and foremost, Equipment Breakdown Insurance covers five kinds of equipment:

1. Mechanical components like motors, engines, generators, elevators, pumps, and specialized manufacturing equipment.
2. Electrical systems including cables, electrical panels and transformers.
3. Air conditioners and refrigeration.
4. Boilers, pressure vessels, and related systems.
5. Electronics, including computer systems, phone systems, security & fire alarm systems.  

How does this type of coverage work? – If you’ve ever had a system failure at your business, you know how frustrating and time-consuming it can be.  Especially if the system is vital to the daily operation of your firm.  Regardless of whether you own the equipment or not, EB insurance can help you get through a major equipment-related crisis without taking a big loss.   Let’s say you came back from a long weekend only to discover your computer network had been damaged by a power surge.  EB insurance would pay to have the server repaired or replaced.  What if the same surge also damaged the 3D printer your business uses to create specialized inventory?   EB insurance would not only cover the expense to repair or replace the printer, it would even cover any losses your company took while it was out of commission. Likewise, if you own a catering company and your walk-in freezer broke down over the weekend, EB coverage would kick in so you could get your freezer fixed and get paid for any food that was spoiled. 

What if the equipment problem occurs off-site? – No problem.  EB Insurance not only covers property on and off-site, it even covers your business for equipment failures related to key suppliers you use to run your firm.  That means if you use the Internet to process orders and your ISP loses power, you’re covered.  If replacement parts for covered equipment that breaks down are temporarily unavailable, you’re covered.

Doesn’t my existing business insurance cover the same things? – Not exactly.  While your commercial property coverage will reimburse you for damage to the equipment caused by external forces such as fire or theft, it won’t cover you from internal forces like surges and shorts or breakdowns and burnouts.  You’ll need EB insurance to be covered for those perils, even if it’s later determined that the cause of the damage was operator error.

Time is money, right? – That means the longer any critical system is down, the more it costs you. EB insurance covers you for temporary or rushed repairs to any covered system.  More importantly, it will also reimburse you for any lost income you can document up to the stated limit of the policy. 

What if the breakdown also injures someone at your business? – Equipment failures and short circuits don’t always happen when nobody is around.  Sometimes they not only damage or destroy equipment, but system failures can also injure someone in the process.  Some EB policies provide additional liability coverage should a breakdown cause an injury to others.

How much does it cost? – EB coverage is relatively inexpensive to acquire.  Typical policies cost between $25-$50 per year for $50,000 of coverage.

What isn’t covered with EB insurance? – While EB insurance is designed to pick up where traditional commercial property insurance leaves off, it isn’t all-inclusive.  There are several exclusions of which you should be aware:

1.      Computer software and stored data aren’t usually covered by EB insurance.  For that, you’ll need a separate cyber insurance policy. 

2.      Wear and tear isn’t a covered peril.  This means if a covered system fails because it was old or poorly maintained, the claim can be denied.  Exclusions include rust, corrosion, deterioration, cracks, mold, shrinkage, expansion, or pest damage.

3.      EB policies have stated limits for every covered claim.  Any amount over the limit will be your responsibility to pay.

4.      Depending on the carrier, you may be required to cover a certain percentage of the value of the property.  Failure to do so could subject you to a penalty or higher out of pocket costs when you file a claim.

How do you know how much EB coverage to acquire? – That’s easy. Speak to your business insurance agent about the costs, coverage, and exclusions of EB insurance today.  Because when it comes to business, time is money. 

Even if the Diane Tait owns and operates A&B Insurance.  To find out more about how you can save money on boat insurance, go to her site.