NYC Insurance Blog

What is Equipment Breakdown Insurance?

Equipment breakdown insurance is a part of a business insurance policy. An equipment breakdown coverage is a vital investment because it helps pay for the cost of repairing or replacing broken down or damaged equipment caused by a covered event/incident. Therefore, the insurance policy helps cover equipment that runs your business, for example, computers, security systems, boilers, and air conditioners.

Why Do You Need Equipment Breakdown Coverage?

Many things can go wrong when you run your own business, especially if you rely on equipment and machinery. When a piece of equipment breaks down, it can result in financial loss and loss in valuable manufacturing or production time. With equipment breakdown insurance, business owners can have peace of mind knowing that the policy can kick in to pay repair bills and lost income when the equipment breaks down. Mechanical and electrical equipment are vulnerable to the following risks:

•  Mechanical breakdown includes the loss caused by bursting or rupture due to centrifugal force.
• The explosion of equipment that operates using internal force or vacuum, for example, steam engines, boilers, steam pipes and steam turbines. Although it excludes explosions inside a piece of equipment, the property policy covers the loss caused by fuel or gas explosions.
• Financial loss from artificially generated magnetic, electromagnetic, or electrical energy.

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What is Equipment Breakdown?

Equipment breakdown refers to a direct physical loss when covered equipment is damaged or breaks down. An equipment breakdown can be defined via these descriptions:

• An electrical failure is a physical loss caused by a power surge.
• Mechanical failure – a loss that results from a mechanical breakdown, for example, when a turbine engine bursts due to centrifugal force.
• Failure of pressure or vacuum equipment

Equipment breakdown coverage is crucial even if you do not own the building. Sometimes the success of your business relies on properly functioning equipment. If equipment fails, you can end up losing a lot of money. For example, if you own a pizza shop that makes deliveries and serves walk-in customers, a power surge can cause a hefty loss. If there is a power outage, you can’t process online orders, prepare, cook and serve your customers. Imagine the power outage lasts for hours or a few days! You could lose income and probably your food inventory. However, with equipment breakdown insurance, it can pay for:

• Lost income during the power outage
• Cost to repair damaged or broken equipment, for example, computers or refrigerators
• Cost of replacing any damaged food
• Any costs associated with labor and time needed to repair or replace damaged equipment 

What Type of Equipment Does this Coverage Protect?

Here are the types of equipment covered by equipment breakdown coverage:

• Electrical or mechanical equipment – examples include refrigerators, generators, ovens, elevators, air conditioners, production machinery and circuit breakers.
• Pressure vessels or vacuum equipment are designed to function under internal pressure or vacuum. Common examples include water heaters, boilers, autoclaves and steam cookers.
• Communication and computer equipment – security and fire alarm systems, computers, printers and telephone systems are common examples.
• Utility-owned equipment - refers to any equipment that fits in any of the categories mentioned above although owned by the utility. The equipment must be located on the business’ premises, providing utility services to the insured business, for example, a utility-owned transformer.

Equipment breakdown insurance may help you pay for:

• Repairs after a covered risk or event
• Extra costs in case there are rush or temporary repairs – temporary or rush repairs help minimize the time your business might be forced to shut down because of equipment breakdown.
• Lost business income due to a broken down or damaged equipment
• Property damage liability costs – equipment breakdown coverage can provide liability protection if an accident or equipment breakdown causes damage to others.
• Compulsory inspection of crucial equipment – thorough inspections are highly recommended because they help prevent a problem in advance.

What is Excluded from Equipment Breakdown Insurance?

Business owners should understand that equipment breakdown insurance provides coverage for the hardware part of the computer systems, telephone systems etc. but not the software. For example, if a virus makes your computer fail to work, the equipment breakdown insurance cannot compensate you. However, if a power surge damages the motherboard of your computer system, you are covered. Here are other risks not included in the coverage:

• Normal wear and tear as the equipment ages
• Equipment that was not properly maintained or stored
• Equipment deterioration due to corrosion, rust or mold
• Property damaged by pests
• Property damaged via operator error

While commercial property insurance covers any damages caused by external events like fire, equipment breakdown insurance covers internal risks like power surges and mechanical breakdowns. Talk to your insurance provider to understand your current insurance policy and whether you need to purchase equipment breakdown insurance. Give us a Call Today for a free quote!

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