How to Protect Your Business From Coverage Gaps Related to Equipment Breakdowns
Equipment breakdown insurance gives you coverage you won't get from your other business policies.
Your business needs to run smoothly to remain profitable, and any major malfunction threatens your profitability.
If you're lucky, your equipment will just need a quick repair that you can perform in-house. If you need a technician and you can find one available that same day, you might still avoid taking a major financial hit.
But the more time you have to wait to repair or replace equipment, the more losses you sustain. And it might not take long before your inability to operate eats into a good chunk of your resources.
But you can do more than just keep your fingers crossed and hope that nothing goes wrong. Equipment breakdown insurance can give you coverage that a standard business policy won't, and it could mean the difference between bouncing back from the losses you incur and having to live with the financial strain for months to come.
Equipment Breakdown Insurance
Equipment breakdown insurance is also known as boiler and machinery insurance. As you can probably tell, that's a term that was coined before the widespread use of electronics, and it applies far more widely than its original name suggests. It provides coverage for a wide range of electrical or mechanical breakdowns that occur during the course of running your business.
Range of Coverage
This policy doesn't just protect you from the obvious issues like losing stock in a kitchen when the walk-in freezer stops working or not being able to continue manufacturing a product when the hydraulic press is jammed and won't budge. A comprehensive equipment breakdown policy will cover you for a number of other scenarios.
If you take a lot of calls from customers or make a lot of money doing outbound calls, for instance, you could recover a loss that you incurred when your phone system went dead.
If you run a hospitality business, you may be able to claim lost profit if your indoor heating system malfunctions and you lose patrons who were hoping for a comfortable atmosphere.
Or suppose the air conditioning system in your factory malfunctions and it is too hot for anyone to work safely. The breakdown forces you to send your employees home, but with the right insurance in place you will be able to recover from the substantial loss in production.
Even if you don't run a manufacturing plant or some other business where the employees work directly with machinery, chances are there is some crucial piece of equipment that you cannot operate without. And if it does, equipment breakdown insurance can help you recover.
Standard Business Policy Coverage Gaps
Buying a standard business insurance policy is a good foundation for your commercial insurance portfolio. But if you rely heavily on your equipment, it might not be there for you when you need it most.
Even a commercial property insurance or business interruption insurance won't necessarily include coverage for all equipment breakdown scenarios. More than likely, your equipment will be covered (if it is at all) for external damage like fire, water, or weather damage. But if you have to cease operations because of internal damage to your equipment – anything from malfunctioning parts to electrical issues – you'll bear the full cost.
When you're reviewing your company's insurance policies, be on the lookout for coverage gaps related to equipment breakdown. They may be wider than you think. And thankfully, they're also easy to fill.
If you're convinced you need equipment breakdown insurance, don't stop reading yet. Here are a few things to consider before buying a policy.
In a lot of cases, repairing or replacing the equipment itself will not be your biggest source of loss. Having to suspend your business operations, even for a short period, costs you money. Be sure to compare policies and look for one that can mitigate losses from halted operations.
Your equipment's functioning doesn't just rely on its own integrity; often, it also depends on some off-site system. Is your electrical system wired to a breaker located off your property? If so, an issue with that breaker could cause your equipment to shut down, but unless your policy includes coverage for off-site equipment, you won't be able to file a successful claim.
Just because you don't own the equipment you rely on, doesn't mean you shouldn't insure it.
If you lease the equipment, it might still make sense to purchase equipment breakdown insurance, even if the equipment's owner is insured. Their insurance will protect them, but you need a policy to ensure that you're protected, too.
No equipment is perfect and even a solid maintenance schedule won't save you from unexpected electrical and mechanical issues.
Don't lose your shirt over malfunctioning equipment. Make sure you have the right kind of breakdown policy in place.