Things break – sometimes at the worst possible moment. Your heater could break down in January, leaving your tenants freezing in the middle of winter. The computer in your office might die, and then you wouldn’t be able to access the files or tenant contact information. Fixing unexpected equipment breakdowns can be a major expense, but with equipment breakdown coverage, you can secure coverage for these costs.
What is equipment breakdown coverage?
IRMI says that equipment breakdown coverage used to be known as boiler and machinery insurance. However, the new name reflects the broader coverage available. It’s not just boilers and industrial machinery that are insured. This coverage can protect your computer systems, HVACs and many other types of equipment.
Residential equipment breakdown
Equipment breakdown insurance is available for both commercial and personal insurance policyholders. Homeowners may want equipment breakdown insurance to cover their personal HVAC, refrigerators, computers and other home equipment. Business owners can use equipment breakdown coverage to cover their own equipment.
For landlords, equipment breakdown coverage can provide protection for many types of equipment located in the units, the common areas and office space. Equipment breakdown coverage may also help homeowners associations with unexpected equipment malfunctions in shared areas.
Adding equipment breakdown coverage to your policy
Many property owners mistakenly believe that their standard property insurance policy provides coverage for equipment breakdowns. This is not true. Under a standard property insurance policy, equipment can be covered if it is damaged by a covered peril, such as fire, storm or theft. However, if the equipment breaks down due to a sudden malfunction, this loss is not covered under a standard property insurance policy. To obtain this protection, you need equipment breakdown coverage.
Equipment breakdown coverage is sometimes sold as a standalone policy. You can also get it as an add-on to your property insurance policy.
Common inclusions and exclusions
Equipment breakdown insurance can provide coverage for many types of equipment, from computers, telephone systems, and security systems to HVACs and various appliances. When a piece of covered equipment breaks down unexpectedly, for example, due to a mechanical breakdown or a power surge, equipment breakdown coverage can apply.
Some policies also include coverage for financial losses caused by equipment breakdown. This can include inventory losses, for example, if a refrigerator breaks down and the items inside spoil, as well as business income loss and extra costs incurred to expedite repairs.
However, equipment breakdown coverage does not cover everything. One of the most important exclusions is for damage caused by normal wear and tear. Every piece of equipment has an expected lifespan.
An HVAC system might last for around 20 years, depending on the model, and that’s assuming regular maintenance. If you do not maintain your equipment, it might fail earlier. Equipment breakdown coverage does not cover losses that occur slowly due to wear and tear. Instead, it covers sudden and unexpected breakdowns.
Furthermore, equipment breakdown coverage does not include damage caused by external perils such as fire. However, these losses may be covered elsewhere in your policy. For example, damage from fire is normally covered under the standard property insurance terms. For fire damage caused by a commercial tenant, the damage to premises rented to you coverage terms may apply.
Policy terms can vary, so read your policy and talk to your insurer if you have questions about the specific types of equipment covered under your policy.
Equipment breakdown coverage vs. home warranties
When you buy a piece of equipment, it may come with a warranty, or you may be able to purchase a warranty for an additional cost. Although equipment breakdown coverage and warranties can sound similar and may indeed have some overlap, there are key differences.
For one thing, warranties are typically written for a single piece of equipment while equipment breakdown coverage can provide protection for many different pieces of equipment at once. Furthermore, warranties typically last for a predetermined length of time, such as a year, two years, or five years. Equipment breakdown coverage can remain in force for as long as the policy is maintained.
The coverages are also different. Unlike equipment breakdown coverage, warranties may cover wear and tear. However, warranties typically don’t cover business income loss.
Equipment breakdown coverage examples
Let’s say a landlord owns a six-unit building in a hot climate. The air conditioning unit suddenly stops working in one of the units. It’s triple digits outside, and state law says that air conditioning is an essential service, so the landlord only has a limited amount of time to complete the repairs. Getting HVAC repair workers on short notice is difficult and expensive, but the landlord makes the arrangements. He also contacts his insurance company. Thankfully, he has equipment breakdown coverage as an add-on to his landlord insurance policy, so the loss is covered.
In another example, a condominium owners association is in charge of an elevator that suddenly malfunctions. The building has seven floors, and stairs are not a reasonable option for unit owners with small children or disabilities, so the elevator needs to be fixed as soon as possible. The elevator has been well maintained, and the expected lifespan should cover another decade at least, so the malfunction was unexpected. The claim is covered by the association’s equipment breakdown add-on, saving the association considerable out of pocket costs.
Is equipment breakdown coverage worth it?
If you depend on various types of equipment to keep your business running smoothly, and if you do not have funds set aside for unexpected repairs, you may benefit from equipment breakdown insurance.
Create a list of all the equipment that your business depends on. This may include computer systems, telephone systems, security systems, boilers, HVACs and other pieces of equipment.
See how much emergency repairs would cost and determine whether you have enough money set aside to cover these costs out of pocket. Keep in mind that two or more pieces of equipment may fail around the same time.