What Does Equipment Breakdown Insurance Cover?

Equipment breakdown insurance protects against unforeseen mechanical or electrical failures in essential equipment. This coverage addresses internal operational issues not covered by standard property insurance. It helps mitigate financial repercussions for businesses and homeowners when critical machinery or systems suddenly cease to function. The policy covers repairing or replacing damaged equipment and helps maintain operational continuity after a malfunction.

Types of Equipment Covered

Equipment breakdown policies cover a broad array of systems and machinery in residential, commercial, and industrial settings. This insurance extends to the internal components of these assets. Common household systems like HVAC units, water heaters, and major appliances such as refrigerators and washing machines are often included.

In commercial and industrial environments, coverage applies to electrical systems, including panels and transformers, refrigeration units, and boilers. Production machinery, such as lathes and milling machines, is also covered. Office equipment, including computers, servers, and communication systems, is frequently included.

Covered Causes of Loss

Equipment breakdown insurance addresses sudden, accidental incidents leading to internal machinery failure. This includes mechanical breakdowns like motor burnout or bearing failures. Electrical arcing, power surges, and short circuits are also common covered perils.

The policy extends to incidents such as boiler explosions and pressure vessel ruptures. Damage from centrifugal force, like a bursting rotating machine, is another covered cause of loss. These incidents are distinct from damage caused by external forces or gradual deterioration.

Covered Financial Losses

Following a covered equipment breakdown, the policy covers the cost to repair or replace damaged equipment, including labor and materials. It can also extend to temporary repairs needed while permanent solutions are implemented.

The coverage protects against spoilage of perishable goods, such as food, if refrigeration equipment fails. Businesses may also recover lost income due to business interruption caused by equipment failure. Additionally, the policy might cover extra expenses incurred to continue operations, like renting temporary equipment or relocating.

Common Exclusions

Equipment breakdown policies do not cover all types of damage or loss. Damage from external perils like fire, flood, windstorm, earthquake, or theft is excluded, as standard property or homeowners insurance typically addresses these events. Gradual wear and tear, rust, or corrosion are not covered, as they relate to natural aging rather than sudden failures.

Breakdowns caused by a lack of maintenance or pre-existing conditions are also excluded. Intentional damage to equipment is not covered, as insurance is designed for accidental occurrences. Damage or malfunctions arising from software or programming errors are outside the scope of coverage.

Distinction from Other Insurance

Equipment breakdown insurance complements, rather than replaces, other common policies like standard property insurance. Property insurance covers physical damage to equipment caused by external factors, such as fire, vandalism, or natural disasters. If a fire damages a machine, property insurance would likely respond.

In contrast, equipment breakdown insurance addresses damage from internal forces or operational failures within the equipment itself. For example, if a motor burns out due to an internal electrical fault, equipment breakdown coverage would apply, not property insurance. These coverages are complementary, as a comprehensive protection strategy often requires both to address the full spectrum of potential risks.