What Is Equipment Breakdown Coverage?
Equipment breakdown coverage, also known as boiler and machinery insurance, pays for the repair or replacement of damaged business equipment. This insurance covers accidental or direct damage that property insurance and warranties typically exclude. Equipment breakdown insurance can also cover lost income, inventory damage, and other losses that result from equipment failures.
Equipment is a necessity for many types of small businesses, whether you work out of a restaurant, office, manufacturing plant, or even your home. 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 an equipment breakdown policy.
Who Needs Equipment Breakdown Coverage?
Put simply, any business that relies on equipment to generate revenue should consider purchasing equipment breakdown insurance. Equipment breakdown insurance was traditionally called boiler and machinery (BM) insurance. This term has faded from use, and the coverage you can purchase today offers protection for many different types of equipment, including high-tech equipment and modern office equipment.
When equipment breaks down, there’s the obvious cost of repairing or replacing it, but there are additional costs which might not immediately come to mind. For instance, if your restaurant’s refrigerator breaks down, the food inside will spoil. 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.
You should consider purchasing equipment breakdown insurance, whether or not you own business space. Even if you’re renting, your landlord generally isn’t responsible for fixing equipment. Plus, other insurance might not protect you. Normally, commercial property insurance protects your equipment from outside dangers, such as fires or storms. It doesn’t protect against operator error, motor burnout, or accidental damage. Similarly, equipment warranties usually only protect manufacturing defects.
What Equipment Breakdown Insurance Covers
Equipment breakdown policies vary in terms of coverage, but most of them cover the following six types of equipment:
- Computers and communication equipment, such as business phone systems and security systems
- Mechanical and manufacturing equipment, such as elevators, motors, and assembly lines
- Electrical equipment, such as transformers, electrical panels, and cables
- Central air conditioning and heating systems
- Boilers and high-pressure equipment
- Renewable and alternative energy equipment, such as solar panels
Equipment can be damaged in a variety of ways—power surges, short circuits, motor burnouts, operator error, and more. Equipment breakdown insurance covers all of these scenarios, and when a piece of equipment fails, equipment breakdown coverage will cover the following types of losses:
Repair and Replacement
The most obvious expense when equipment breaks down is the cost to repair or replace it. For instance, if your computer breaks down, 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 equipment breakdown insurance will pay for you to purchase the same or a similar computer.
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.
If your equipment fails and you lose business revenue as a direct result, many equipment breakdown insurance policies will 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. We recommend using accounting software to track your business income.
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.
Sometimes, local governments require businesses to have boilers and food equipment regularly inspected to comply with safety standards. Depending on your policy, equipment breakdown coverage might reimburse you for the cost of these mandatory inspections. Some insurance companies even have licensed inspectors on staff to perform the inspections.
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 Costs
When business equipment breaks down, you might have additional costs. For example, you might need to pay a technician extra to expedite equipment repairs. The equipment might result in data losses or environmental spills. The insurance company will pay for these losses if they are covered in your equipment breakdown coverage policy.
What Equipment Breakdown Insurance Doesn’t Cover
There are limits to what equipment breakdown insurance will cover. Here are a few things that your equipment breakdown coverage won’t apply to:
- 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 covered by equipment breakdown insurance. You can purchase separate commercial auto insurance to protect business vehicles.
Keep in mind that equipment breakdown coverage comes with a deductible and coverage limits. Your coverage will kick in only after you’ve paid the deductible on a claim. If a claim exceeds your coverage limits, then you’re responsible for paying the overage out of pocket.
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.
That’s a very 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.
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 equipment breakdown 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
Business equipment can be very expensive to repair or replace, especially when it suddenly breaks down, so purchasing insurance is often the most economical decision in the long run.
Where to Buy Equipment Breakdown Coverage
Insurers might sell equipment breakdown insurance as stand-alone coverage, or it might be added on to a commercial property policy or business owner’s policy (BOP). If you already have property insurance or a BOP, 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 equipment breakdown coverage, ask your insurer if you can add it to your current policy.
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 which ranks insurance carriers according to their financial stability. Here are some providers that we recommend for buying equipment breakdown coverage, not ranked in any particular order:
The Hartford is an A+-rated insurance company. While 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. In fact, The Hartford’s main clientele are startups and mom-and-pop businesses. To get started, you can either get a quote on The Hartford’s website or work with an agent.
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 equipment breakdown insurance that’s perfect for your business.
Hartford Steam Boiler
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—here’s an example for restaurants.
Since HSB specializes in underwriting equipment breakdown insurance, 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 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. Find a Travelers agent near you to get started.
Nationwide is an A+-rated insurer and our final recommendation for buying equipment breakdown coverage. Their 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 food service. 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.
Equipment Breakdown Coverage: The Bottom Line
Any business that depends on equipment to generate revenue should consider equipment breakdown coverage. Far from the boiler and machinery policies of old, today’s equipment breakdown policies provide broad protection for all types of equipment. Fortunately, many insurers provide equipment breakdown insurance for small businesses, and you can customize the coverage to fit your company’s needs. We recommend starting with CoverWallet, so you can compare quotes and options from multiple insurance companies.