What is equipment breakdown insurance and why do I need it?

Maybe a burned-out motor in a critical piece of machinery brings your entire production line to a halt. Or maybe a power surge causes damage to electronic components in a piece of equipment that requires extensive repairs from a skilled technician.

A sudden, unexpected breakdown of your critical equipment or machinery can have serious consequences, from lost production time to delayed orders. In some cases, it can damage your facility and create safety hazards for workers.

The longer the downtime, the bigger the loss. Not only is there a cost to repairing or replacing equipment, but your business could face financial losses from downtime, missed deadlines, and project delays.

What is equipment breakdown insurance?

Commercial property insurance helps cover costs related to external risks, such as damage from fire, wind, hail, theft, and vandalism. While it can protect tools and equipment from these types of losses, it typically doesn’t cover risks associated with manufacturing or industrial equipment. An equipment floater can provide coverage for essential machinery but that’s only for external causes.

Equipment breakdown insurance helps to fill this gap. This specialized coverage, typically purchased as an add-on to an existing policy, applies to sudden, accidental breakdowns due to an internal cause, rather than an external cause such as fire or theft.

An internal cause could include the breakdown or malfunction of electrical, mechanical, and pressure equipment, such as electrical short circuits, air conditioning failures, refrigeration system breakdowns, motor burnouts, or production machinery — risks typically excluded from commercial property policies.

However, equipment breakdown insurance doesn’t cover breakdowns related to regular wear-and-tear or equipment that hasn’t been properly maintained. Nor does it cover damage during installation or upgrades (for that, you’ll want to add an installer floater onto your existing policy).

Why do you need equipment breakdown insurance?

As manufacturing equipment becomes increasingly sophisticated with more complex components, something as simple as a power surge could damage multiple interconnected components and take your production line down

While some equipment or machinery may be under warranty from the manufacturer, warranties often only cover specific parts or components, so check the fine print. Warranties don’t cover operator errors, nor will they reimburse you for loss of productivity, equipment rentals, or temporary relocation. Once the warranty expires, the responsibility to repair or replace the equipment falls squarely on the owner of that equipment.

Additionally, it’s not always easy to get the parts you need for repairs or replacement. Certain components may be in short supply because of manufacturing constraints or supply chain disruptions. Repairs may require the services of an in-demand skilled technician, meaning you’ll have to wait until they can fit you into their schedule.

Some provinces also require inspections of certain types of equipment to ensure compliance. So, if you’ve repaired or replaced your equipment, you may still need to wait for an inspection — further adding to the costs of lost production time.

If you don’t have equipment breakdown insurance, your company will have to cover the costs of repairs and replacements, along with any costs related to downtime. Moreover, late deliveries and missed deadlines can strain customer relations and damage your reputation.

What does equipment breakdown insurance help cover?

Equipment breakdown coverage helps cover the costs of repairing or replacing damaged equipment or machinery that’s essential to running your business, as well as costs related to downtime and business interruption.

Unlike a manufacturer’s warranty, it helps cover costs related to diagnosis fees, labour, and lost income. It also covers rental reimbursement and temporary relocation if you need to rent equipment or relocate while yours is being repaired or replaced. Look for coverage that helps to cover additional expenses, such as expedited parts, rush repairs, or spoiled inventory. Commonly covered equipment includes heating and cooling systems, refrigeration units, electrical panels, and production tools that are essential to your daily operations.

If your business relies on manufacturing equipment or machinery used in production processes, you’ll need to specifically request this as part of your property coverage (and undergo a complete assessment of those processes). Coverage typically comes with its own deductible, which is based on the equipment’s value, age, rarity, and how easily it can be repaired or replaced.

Equipment breakdown insurance is often bundled with commercial property insurance as part of a broader business protection plan, giving you more complete coverage in one convenient package.

Protect your business with equipment breakdown insurance

Protect your business from unexpected equipment failure with the right insurance coverage. Equipment breakdown insurance can help you manage repair costs, minimize downtime, and keep your operations running smoothly. To learn more about how this coverage can support your business, visit our Equipment Breakdown Insurance page today!

This blog is provided for information only and is not a substitute for professional advice. We make no representations or warranties regarding the accuracy or completeness of the information and will not be responsible for any loss arising out of reliance on the information.