Imagine the bustling lunch hour at a popular restaurant. Orders are flying, the grill is roaring, and the ice cream machine is churning out sweet treats. Suddenly, a loud bang silences the kitchen. The walk-in freezer, the lifeblood of the restaurant, has seized up. Chaos ensues.
The breakdown? The freezer’s compressor, a vital piece of equipment, has malfunctioned due to an internal electrical failure. The temperature rapidly rises, jeopardizing the entire inventory of fresh ingredients, dairy products, and frozen desserts.
The consequences? Spoiled food means lost revenue and disappointed customers. The restaurant is forced to shut down operations, potentially losing hours of valuable business income. Finding a qualified repair technician on short notice can be difficult and expensive.
This is where equipment breakdown insurance comes in.
What is Equipment Breakdown Insurance?
Equipment breakdown insurance (EBI), also known as boiler and machinery insurance (BM) or mechanical breakdown insurance, provides financial protection for unforeseen breakdowns or malfunctions of your vital equipment.
From the example above, this type of insurance would cover the cost of repairing the freezer’s compressor, potentially minimizing downtime and preventing food spoilage.
Equipment breakdown insurance not typically included in standard commercial property insurance policies, but it can be added as an endorsement or purchased as a standalone policy.
What Does Equipment Breakdown Insurance Cover?
This type of insurance primarily covers breakdowns caused by internal mechanical or electrical failures, some examples include
Electrical breakdown
This type of breakdown includes but are not limited to, power outage, short circuits, power surges, motor burnout, and transformer malfunctions.
Mechanical failure
Mechanical breakdowns include gear slippage, bearing failure, pump breakdowns, control system failures.
Operational mishaps
Operational breakdown would usually include overheating, pressure fluctuations, improper lubrication, operator error (in some policies).
While the primary focus is on repair or replacement costs for the insured equipment, some equipment breakdown insurance coverage are broad, including:
- Lost Business Income: Reimbursement for revenue losses incurred during equipment downtime.
- Spoiled Inventory: Coverage for perishable goods damaged due to malfunctioning equipment.
- Expedited Repair Services: Assistance in securing prompt and qualified repair technicians.
Types of Equipment Covered by Equipment Breakdown Insurance
Equipment breakdown insurance provides financial protection for a variety of business-critical equipment against sudden and accidental internal damage.
While the specific types of equipment covered may vary slightly between policies, a general breakdown falls into the following categories:
Production Systems and Manufacturing
- CNC machines/machining tools
- Robots
- Conveyor belts
- Presses
- Milling machines
Business Equipment and Infrastructure
- HVAC systems (chillers, air conditioning)
- Generators
- Electrical systems and electrical panels
- Transformers
- Security systems
- Water pumps
- Fire alarm systems
Technology and Data
- Computer systems and servers
- Network infrastructure (switches, routers, firewalls)
- Data storage systems
- Telecommunications equipment
Medical Facilities
- MRI machines
- X-ray equipment
- Centrifuges
- Sterilizers
- Laboratory equipment
Hospitality and Food Service
- Ovens
- Refrigerators
- Fryers
- Walk-in coolers
- Ice cream machines
What is Excluded in Equipment Breakdown Coverage?
Equipment breakdown insurance, while valuable, has its limitations. Several types of damage are typically excluded from coverage:
Normal Wear and Tear
Gradual deterioration and rust over time are expected and not covered.
External Events
Damage caused by fire, floods, theft, or vandalism falls under your commercial property insurance, not equipment breakdown.
Software Issues
This insurance focuses on physical hardware failures and does not cover software failures. Separate cyber insurance is needed for software protection. Think of a computer crashing because of a faulty hard drive, not a virus.
Lack of Maintenance
If you neglect recommended maintenance and a breakdown occurs, coverage might be denied. Regular upkeep is crucial to maximize coverage. A good example is skipping oil changes in your car leading to engine failure.
Operator Error
Certain policies may exclude breakdowns caused by deliberate or reckless operator actions. Accidental errors might still be covered. For example, a person accidentally overloading a machine beyond its capacity.
Specific Equipment Types
Some policies may exclude certain types of equipment, like boilers or elevators, which might have dedicated insurance requirements
What Businesses Need Equipment Breakdown Coverage?
Equipment breakdown insurance is particularly essential for those that rely heavily on critical machinery for their operations, especially if breakdowns could lead to significant lost income due to business interruption.
Here are some specific types of business that should greatly consider getting a comprehensive equipment breakdown coverage:
- Production and manufacturing: Factories, workshops, and assembly lines heavily reliant on machinery.
- Construction and engineering: Businesses using excavators, cranes, or specialized equipment.
- Technology and data centers: Companies with server farms, network infrastructure, or sensitive data storage equipment.
- Medical and healthcare facilities: Hospitals, clinics, and labs using diagnostic equipment, laboratory apparatus, or sterilization units.
- Hospitality and food service: Restaurants, hotels, and catering companies reliant on refrigerators, ovens, cooking equipment, or HVAC systems.
- Transportation and logistics: Businesses operating fleet vehicles, heavy machinery, or warehouse equipment.
Ultimately, the decision to purchase equipment breakdown coverage depends on a risk-benefit analysis considering your specific equipment, potential disruption consequences, and financial capacity to handle breakdowns.
Consult with Dream Assurance and let us help you assess your needs and find the most suitable coverage plan. We coordinate with multiple carriers to help you get the best coverage for your equipment. Get an instant quote from our insurance agents today.
