Definition of Equipment Breakdown Coverage in Business Insurance

Commercial insurance terms and definitions. Learn more about business insurance terminology and get the right coverage for your business.

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Equipment Breakdown Coverage

As most businesses know, equipment will periodically break down. This usually happens due to a faulty part or general wear and tear. In other cases, failure occurs due to uncontrollable internal issues. It’s in these situations when a business needs equipment breakdown coverage.

What Equipment Breakdown Insurance Covers

Breakdown insurance covers machinery damage that isn’t related to fire or weather-related conditions. Examples of covered causes include:

  • Power surges and shorts

  • Mechanical breakdowns (e.g. motor burnout)

  • Human error

This type of policy isn’t only for manufacturing machines. It also applies to computers, laptops, and other electronic equipment used in daily business operations. However, equipment breakdown coverage does not handle the replacement of software installed on the devices.

Typically, this type of insurance covers:

  • Mechanical items like engines, generators, water pumps, and specialized equipment

  • Electrical cables, transformers, and panels

  • Computers and network equipment

  • Communication equipment such as phone systems

  • Fire suppressant and alarm systems

  • HVAC units and components, such as the air conditioner

  • Boilers and other pressure-based equipment

Examples of Coverage

The scope of equipment breakdown coverage is wide enough to handle issues at the moment of occurrence and in the moments where repairs take place. For instance, a restaurant loses business during a power surge. Thus, it’s unable to seat people, serve any cooked food, or maintain a comfortable temperature. As a result, it has to temporarily close while the source of the surge is located.

In this case, equipment breakdown insurance would cover the loss of income while the power was out as well as the repairs needed to fix areas affected by the outage. If equipment was damaged beyond repair, the insurance would cover the cost of replacement. In a situation where food went bad due to an outage, the insurance would help pay for new ingredients.

What Does a Policy Cost?

Different factors determine the cost of equipment breakdown coverage. The state and city/town where the business is located can affect the price. Another potential item is the amount of equipment the company wants to insure. Liability limits also determine what the business pays when it comes to regular premiums.

To come up with a proper estimate, the business must perform a risk management assessment. Here, they list the equipment they rent or own. Next, they list potential issues that can result in their failure. With this information at hand, the company should be able to come up with a proper limit for coverage.

If the business doesn’t want to do this on their own, they can request an audit from the firm they want to work with. As a result, an adjuster would come out to their business and perform a similar review to determine the proper coverage amount.

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