Almost every business requires some form of equipment in its day-to-day operations. For offices, restaurants, manufacturing plants, and retail stores, equipment breaking down can cost your business valuable time and money. To protect your business from unexpected electrical and mechanical failure, equipment breakdown coverage can cover some costs.
However, shopping for breakdown insurance for your business can be challenging if you’re not sure where to start. This guide will help walk you through the process of investing in the right insurance plan for your needs. This includes assessing your business risks, typical coverage inclusions, cost of breakdown coverage, and more.
Who Needs Breakdown Insurance?
To start with, you may be wondering whether your business needs breakdown insurance in the first place. Although you may already have other forms of insurance, such as general liability insurance, commercial property insurance, or a business owner’s policy in place, chances are that they don’t cover all issues related to equipment breakdown.
The costs associated with the breakdown of elevators, air conditioners, and more can be significant in the short term as well as the long term, especially if you don’t have enough funds for repair during peak season. Because of this, all businesses should strongly consider investing in breakdown insurance in the event of a worst-case scenario.
However, breakdown insurance is especially vital for those dealing with the production of goods, such as coffee shops. If your roaster breaks down, you’ll want to get it up and running as soon as possible to prevent your customers from going elsewhere. In addition, equipment breakdown can also cause bodily harm to your employees, where additional coverage can come in handy.
In summary, breakdown insurance for your business is useful if:
- You are looking for extra financial protection for your business
- You own assets and equipment that has the potential to break down
- You need added coverage beyond common business insurance policies
Top Factors to Consider When Buying Breakdown Insurance
As you’re comparing different breakdown insurance policies from various companies, consider factors such as the type of equipment you’re protecting, the cost of each policy, any limitations and exclusions, and the level of coverage you need for adequate protection.
Usually, breakdown coverage is available as an add-on to your existing business policies, so it’s also worth looking at your current insurance company to see if they offer this specific policy. Since every business will have its own requirements, the cost of a breakdown insurance policy can vary depending on coverage limits and your location.
Type of equipment that requires coverage
Not every type of machine is recognized under equipment breakdown coverage. Before signing your name on the dotted line, check whether the type of equipment you’re using is covered under your chosen policy. Some common policy inclusions are:
- Utility-owned equipment: This includes a transformer that delivers electricity to power your business
- Communication and computing equipment: Your business may own security cameras, smoke alarm systems, computers, printers, and telephone systems
- Vacuum equipment and pressure gear: Steam cookers, pressurized storage tanks, water heaters, boilers, and vacuum pumps, are typically covered under breakdown insurance
- Electrical and mechanical gear: Almost every business owns and operates air conditioners, ovens, refrigerators, elevators, furnaces, circuit breakers, transformers, compressors, and other production-related equipment
Cost of coverage
Depending on the type and value of the equipment you are looking to protect, the cost of a breakdown insurance plan can vary greatly on a per-policy basis. Each one comes with unique risks, and coverage limits, payment plans, and the location of your business can all impact coverage costs.
Like all insurance plans, it’s often better to be safe than sorry when investing in breakdown insurance. If the price of a policy sounds too good to be true, it probably doesn’t offer sufficient protection for equipment breakdown. Investing in more coverage than you think you need is usually the best way to cover all your bases.
As with every insurance policy, a breakdown insurance policy will come with several exclusions and limitations that you should be fully aware of. This can be hidden in the fine print of the text, so it’s worth knowing what you’re signing up for before making a commitment.
Some popular exclusions and limitations include specific time periods for equipment breakdown and instances of operator error. In addition, ordinary wear and tear on equipment are not usually covered by equipment breakdown insurance.
If your equipment stops functioning properly due to improper maintenance or age, your breakdown insurance plan probably won’t cover these costs. Furthermore, every policy comes with a maximum coverage amount, so any cost that goes beyond this limit will be your responsibility to cover.
Level of coverage needed
To help you decide on the level of breakdown insurance coverage you need, you can look at how much equipment you operate and who owns it. Business-owned equipment, the equipment you’re borrowing from leasing companies, or anything on loan from your landlord or property manager are some examples that can determine your coverage needs.
For your business, equipment breakdown coverage can help cover the loss of business income in the event that your equipment fails. For instance, if you sell cakes and ice cream, an insurance plan can help compensate for the loss of sales for temperature-sensitive products along with the repair of physical equipment.
Depending on your leasing agreement, equipment leasing companies might require you to pay for any repairs or damage related to the property on loan. Breakdown coverage can prevent your business from expensive legal fees if this occurs on your watch.
Finally, there may be on-site equipment your business operates without necessarily owning. If it is in your contract, your landlord or property manager might require you to replace any damaged equipment due to things like power surges and mechanical breakdown.
The reputation of the insurance company and state availability
Choosing a breakdown insurance plan from a reliable insurance company can save you from lengthy processing times and headaches down the line. Look for a company with strong ratings in terms of financial strength and availability in your state.
Factors including AM Best’s financial strength ratings, company history, and level of customer service can help you decide which insurance plan can provide you the most value in terms of coverage terms and cost.
Additional coverage options
In addition to standard forms of breakdown insurance coverage, you may also need more specialized forms of protection depending on your business needs. Extending your policy can cost an extra few dollars, but can pay for itself in the long run. This can include:
- Spoilage: Deals with the cost of any raw materials or goods that have spoiled due to the lack of power or improper temperature on business premises due to covered equipment breakdown
- Utility interruption: Can cover the cost of spoilage or additional expenses due to mechanical or electrical damage to covered equipment away from your premises
- Expediting expense: Covers the additional cost of temporary repair or speeds up permanent repair due to damaged equipment
Examples of Losses Covered by Breakdown Insurance
If you’re still on the fence about whether your business needs to invest in breakdown insurance, here are a few examples to demonstrate how this insurance works in real-life scenarios. When it comes to protecting your business with an insurance policy, it’s best to approach things with a ‘sooner rather than later’ mentality.
- Repair and Replacement Costs
One of the most common issues that every business tends to run into is computer issues. If you have commercial breakdown insurance, this can cover the cost of hiring a technician to determine the extent of the issue and provide repair. It might also cover the cost of renting a temporary unit to use in the meantime or pay for a new computer if it can’t be repaired.
- Lost Income Costs
If lost business revenue is directly related to equipment failure, you may be able to recover some or all of this cost. For instance, if you typically sell $1,000 worth of ice cream a day and can prove this, you can file a claim with your provider to recover lost income due to a broken or malfunctioning ice cream machine.
- Spoiled Inventory Costs
If your business deals with perishable goods, an equipment failure such as a restaurant refrigerator breakdown can be extremely damaging in terms of cost. Having insurance coverage in place can reduce necessary stress and prevent your business from having to shoulder additional costs.
As a business owner, preparing for the worst is essential. Having equipment insurance in place can cover costs related to damaged equipment, devices, and tools that are essential to keep your business running and your customers happy.
Although it is a form of optional coverage, thinking ahead and having a safety net in place can help your business stay competitive over time. If you’re still unsure about the extent of breakdown insurance coverage you need for your business, consider seeking guidance from a trusted business insurance agent in your area to see what options are available to you.