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4 min read | Published 09/07/2024
If your work relies on permanent equipment, such as boilers or lifts, you should consider protection to cover the costs of repairs or replacements. Here, we explain what you need to know about equipment breakdown insurance.
Businesses stand or fall on their reputation, and customers won’t be sympathetic if you can’t deliver an order because your production line has failed. Unless you can easily cover the costs of any repairs or replacements, you need to take out insurance to limit any disruption.
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Equipment breakdown insurance typically protects items you install in your workplace. It's typically equipment you only remove when it's no longer required or needs replacing. It covers machinery and equipment that are not protected as standard by commercial property insurance and business contents insurance policies.
This type of insurance is designed to cover repair or replacement costs for a wide range of business equipment. It also pays out for lost labour time, perishable stock, temporary rental of equipment and lost income.
Equipment and machinery that are typically covered include:
Boilers
Central heating systems
Cooling and refrigeration units
Food preparation equipment
Conveyor belts and other production machinery
Security and alarm systems
Computers, printers and scanners
Laundry equipment
Telephone and intercom systems
Electrical equipment, including transformers and switchgear
While the types of equipment are typically bound to one location, many policies extend to include transportable off-site equipment such as generators. Some policies expand the definition of utility interruption too. This means cover relating to internet access, wide-area networks and data transmission.
You can also cover recently installed or under-construction equipment and installations. The level of protection you can get on newer machinery differs from one policy to another. The same is true of other benefits of equipment breakdown insurance. These differences make it important to shop around for protection.
If your business couldn’t function without specific equipment and machinery, you probably need equipment breakdown insurance. Unless it’s under warranty or someone else’s responsibility, you have to deal with the costs of a mechanical or electrical breakdown. You also need to:
Cover downtime while the equipment is inoperable
Explore whether someone can fix the broken item and, if so, how much it would cost
Source a replacement and arrange for the dismantling, removal and safe disposal of old equipment
Recent research puts the potential risk and cost of equipment breakdown into context. According to a survey of 500 small- and medium-sized businesses, 82% of companies experienced unexpected downtime in the past three years. Furthermore, the hourly cost of that downtime was estimated to be between £1,700 and £7,500.
Insurers typically offer between £1 million and £5 million equipment breakdown cover as standard. The amount you pay depends on the value of the protected property.
Policy terms and conditions differ between insurers. Shop around and remember to note payout limits and policy excesses, which could range between £100 and £500.
For example, even where there’s a £5 million single claims limit, a lower limit may apply to issues with computer equipment. That might mean you may only be able to claim up to £500,000 for failed IT equipment.
Many insurers sell equipment breakdown insurance as part of business premises or contents insurance. Costs typically start from around £8 a month, but prices depend on several factors. These might include:
Whether the machinery is protected
Its location and the value of the insured property
For example, if you run entertainment events, cover could cost between 0.25% and 0.35% of the protected properties' value. But this depends on the event’s duration.
In other cases, where all protected items remain at your workplace, cover may cost around 1% of the equipment's value.
This insurance is designed to limit an incident's impact on your business. But it can also help you to avoid a claim in the first place. After all, it’s in insurers’ interests as well as yours to avoid a claim where possible.
For this reason, it’s worth looking out for policies that offer the following:
Assessments of critical equipment reliability
Oil analysis
Vibration reporting
Infrared and ultrasound inspections
Customised stress and safety testing for clients’ systems
Equipment breakdown insurance is usually an add-on to another type of cover. It may be an optional extra on commercial premises and contents insurance. You might also find it with specialist policies such as event property insurance.
Equipment breakdown insurance doesn’t cover all causes of machine failure. Most policies exclude the following:
Wear and tear
Rust and decay
Deliberate damage
Negligence, such as failing to maintain equipment
External events, such as storm or flood damage
Cyber attacks
Equipment breakdown insurance covers items that wouldn’t be expected to be portable, such as refrigeration units or desktop computers. To cover equipment outside the scope of this insurance, you probably need some or all of the following:
Business contents insurance covers items you have bought to help you run your firm, including tools, devices, furniture and fixtures.
Commercial property insurance. This is the business equivalent of domestic building insurance.
Goods in transit insurance covers equipment you may be transporting for clients.
Van insurance. All work vehicles must have motor insurance by law.
Cyber insurance covers the effects of computer viruses and other online attacks.
Tool insurance. This may be included under your van insurance but is worth considering as a standalone policy if not. It protects hand and power tools, as well as vacuum cleaners and other associated devices.
Business interruption insurance. This covers loss of earnings while your firm is unable to trade
Alex joined in 2019, bringing his expertise to a range of roles working in both the Analytics and Commercial teams. More recently he has stepped across to focus on Product, where he’s been focusing on scaling up the teams’ SME offering.
