Do Small Businesses Need Equipment Breakdown Insurance?

Many small businesses depend on equipment and systems to keep operations running smoothly. When one of these breaks down, the impact can go beyond the repair itself. Even a short disruption, such as an HVAC unit failing during business hours, can trigger a chain reaction that could cause closures and create unexpected costs.

Because these types of equipment malfunctions are often caused by internal mechanical or electrical issues, they aren’t always covered by a standard business insurance policy. Equipment breakdown insurance is designed to help address situations like these.

Let’s take a closer look at how this coverage works, so you can decide whether it’s a good fit for your small business.

What Is Equipment Breakdown Insurance? 

Commercial equipment breakdown insurance, sometimes referred to as boiler and machinery insurance, is a type of business insurance that helps cover unexpected failures of the systems and appliances businesses rely on every day.

Equipment breakdown insurance can typically be added to an existing commercial property insurance policy or business owners policy (BOP).

Equipment breakdown claims are generally triggered by sudden and accidental failures, including:

• Mechanical failure, such as a motor burnout or broken component
• Electrical failure, including short circuits or electrical arcing
• Power surges that damage electrical or electronic equipment
• Operator error that results in accidental damage to equipment

What Does Equipment Breakdown Insurance Cover? 

Commercial equipment breakdown insurance is designed to provide equipment coverage for small businesses that rely on a wide range of systems and machinery to operate. Coverage is generally tied to equipment that plays a direct role in business operations.

Commonly Covered Equipment

While coverage details vary by policy, equipment breakdown insurance typically helps protect both routine business equipment and more complex machinery, including:

• Boilers, compressors, and pumps
• Computers and servers
• Elevators and escalators
• HVAC systems
• Manufacturing and production machinery
• Medical equipment
• Ovens and dishwashers
• Refrigeration equipment
• Retail point-of-sale devices
• Washers and dryers
• Water heaters and water pumps

Types of Losses That May Be Covered 

In addition to covering damage to the equipment itself, equipment breakdown insurance may help cover related financial losses and operational impacts that result from equipment malfunctions. Common equipment breakdown coverage examples include:

• Repair or replacement of damaged equipment, including parts and labor
• Business income interruptions and related expenses
• Spoilage of perishable goods, such as inventory affected by refrigeration failure
• Restoration of data lost or damaged due to a breakdown of covered equipment owned by you or your service provider
• Temporary operational solutions, such as renting replacement equipment
• Public relations services when a covered breakdown leads to reputational damage
• Energy-efficient equipment upgrades, when replacing covered equipment

What Equipment Breakdown Insurance Does Not Cover 

Like most types of business insurance, equipment breakdown insurance has certain limitations. Equipment breakdown insurance typically does not cover:

• Normal wear and tear or gradual deterioration over time
• Lack of maintenance or failure to properly service equipment
• Obsolete equipment that has reached the end of its useful life
• Cyber incidents, such as malware or ransomware attacks
• External causes, such as fire, wind, hail, or theft

How Equipment Breakdown Insurance Differs From Other Business Insurance 

Many business owners wonder: Does my business insurance cover my equipment? In many cases, coverage depends on the type of insurance and how the damage occurs.

Commercial property insurance typically covers equipment when it’s damaged by external events, such as fire, wind, hail, or theft. On the other hand, commercial equipment breakdown coverage focuses on losses caused by sudden equipment failures, such as mechanical or electrical breakdowns. In some situations, inland marine insurance may also apply, particularly for equipment that is mobile or regularly used off premises.

Together, these coverages address different types of risks, helping businesses insure equipment across a range of scenarios.

Equipment Breakdown Insurance in Action 

Seeing how this coverage can apply in real situations often makes it easier to understand. The following equipment breakdown coverage examples illustrate how breakdowns of machinery can affect operations and how equipment breakdown coverage may help.

Refrigeration Failure at a Bakery* 

A bakery relies on refrigeration equipment to store ingredients and finished products. When a refrigerator fails due to a mechanical issue, stored items may spoil, and deliveries may be delayed.

In situations like this, an equipment breakdown policy may help cover the cost to repair or replace the refrigeration unit. Depending on the policy, coverage may also help address spoilage and other expenses associated with the disruption.

Heating System Breakdown at a Law Firm* 

A law firm experiences an HVAC system breakdown during winter weather due to an electrical malfunction. Without adequate heating, the office may need to close or bring in supplemental heating while repairs are made.

In this scenario, an equipment breakdown policy may help cover the cost to repair or replace the HVAC system. Depending on the policy, coverage may also help address certain expenses, such as renting temporary heating equipment to maintain operations.

Is Equipment Breakdown Coverage Worth It for Small Businesses? 

For many small businesses, an equipment breakdown policy is worth considering because when essential equipment goes down, the ripple effects can affect nearly every part of the business.

Downtime can create immediate financial pressure, especially when business operations slow or stop altogether. Even short interruptions may lead to missed sales, delayed services, or added expenses to keep things running while repairs are made. Breakdowns of machinery can also affect people — employees may be unable to do their jobs effectively, and customers may experience delays, cancellations, or reduced service. Over time, repeated disruptions can negatively impact a business’s reputation.

While warranties and routine maintenance play an important role in helping to manage equipment risk, they may not fully address the broader consequences of a sudden breakdown. Warranties often have limits, exclusions, or time constraints, and maintenance plans can’t always prevent mechanical or electrical failures. Equipment breakdown insurance is designed to respond when breakdowns occur despite your best efforts to prevent them.

Which Businesses Benefit Most From Equipment Breakdown Coverage? 

Most small businesses rely on equipment to operate, but some industries may have more to gain from equipment breakdown coverage, including:

• Hospitality, which depends on refrigeration, cooking, and climate-control systems
• Manufacturers, where production equipment is central to operations
• Medical offices, which rely on specialized equipment to serve patients
• Retailers, where point-of-sale systems are essential
• Technology, where servers, computers, and electrical systems support daily work

Protect Your Business From the Unexpected 

Even well-maintained equipment can experience unexpected breakdowns. Mechanical and electrical issues don’t always come with warning, and when they occur, the impact can extend beyond the equipment itself.

Commercial equipment breakdown coverage can serve as a smart, proactive safeguard for small businesses that rely on essential systems to operate day to day. When combined with other business policies, equipment breakdown insurance can play an important role in overall equipment coverage for small business.

Every business is different, and coverage needs can vary based on operations, industry, and the types of equipment in use. Talking with an insurance agent can help you understand how different coverages work together to insure your business equipment against a wide range of risks.

For more small business coverage insights, explore these related articles:

• Does Your Small Business Need Cyber Insurance?
• How to Know if Your Small Business Needs a Commercial Umbrella Policy
• Do I Need Workers’ Comp Insurance? A Guide for Small Business Owners
• The Ultimate Guide to Small Business Insurance Coverage