SMB Owners: Don’t Overlook Equipment Breakdown Coverage in Your Policy

Picture this: you own a thriving bakery. It’s Saturday morning, the busiest day of your week. You’re prepping trays of croissants and muffins when you notice something’s wrong. The walk-in cooler isn’t humming. By the time you check inside, the compressor has failed. The ingredients you bought in bulk? Spoiled, and now your customers are heading to the café down the street.

Losses like this aren’t rare. According to FM Global, equipment failures account for as many as one-third of property-related losses. Yet, many small business owners assume their property insurance will cover the damage. It usually doesn’t.

That’s where Equipment Breakdown Coverage comes in. This coverage can make the difference between a minor headache and a major disaster. Let’s dive in.

What Makes Equipment Breakdown Coverage Different?

Most people think of insurance in terms of external risks: fires, theft, storms, vandalism. Property insurance handles those. But what happens when your internal equipment fails?

That’s the gap Equipment Breakdown Coverage fills. Also known as “boiler and machinery insurance,” it covers losses caused by mechanical or electrical breakdowns, short circuits, motor burnouts, operator error, and even power surges. Standard property insurance usually excludes these coverages. This coverage doesn’t just repair the equipment; it can also cover lost income if your operations halt.

Nearly every small business relies on critical equipment, even if it’s not “heavy machinery.” Consider:

• HVAC systems keeping a daycare center comfortable in summer.
• Servers running a small accounting firm.
• Refrigeration units at a restaurant or grocery store.

If any of those break down, business stops.

What’s Actually Covered in Equipment Breakdown Coverage?

Let’s get specific. Equipment Breakdown Coverage usually protects six major categories of loss:

1. Mechanical breakdowns – Motors seize, gears crack, compressors give out. A single broken part can idle an entire production line.
2. Electrical failures – Short circuits, blown transformers, and power surges can fry expensive equipment in seconds.
3. Pressure system failures – Boilers, valves, hot water systems. If your business relies on them, you know how disruptive a breakdown can be.
4. Computers and electronics – Servers, payment systems, phone systems. In today’s digital economy, downtime is costly.
5. Refrigeration and HVAC units – From grocery stores to medical clinics, refrigeration and climate control aren’t optional. When they fail, losses add up quickly.
6. Business interruption – Many policies extend beyond fixing the machine. They reimburse lost income and even extra expenses you take on to keep things running.

In other words, it’s not just the cost of replacing a part. It’s the cost of keeping your business afloat while you’re waiting for the part to arrive and be installed.

Real-World Claim Examples

Abstract lists are one thing, so let’s look at how a breakdown could play out in everyday businesses.

The café cooler crash. A small restaurant loses its walk-in refrigeration overnight. The compressor burns out. By morning, thousands in perishable inventory are ruined. They shut down for lunch service, losing both food and revenue.

The manufacturer’s gear failure. A gear assembly fails at a machine shop. Production halts for two weeks while replacement parts are sourced and labor is hired.

The retailer’s bad weekend. A surge knocks out a store’s point-of-sale system on Friday night, right before a weekend sale. Registers are down, sales are lost, and the cost of repair comes on top. The damage isn’t just dollars—it’s reputation, too.

These aren’t outliers. They’re everyday examples of how fragile operations can be when a crucial link in your equipment chain fails.

What Impacts the Cost of Equipment Breakdown Coverage?

The good news is that Equipment Breakdown Coverage is usually affordable, often just a few hundred dollars a year. However, like all insurance coverages, the price depends on multiple factors:

• The type and value of equipment – A bakery with a few ovens and a cooler will pay less than a data center with racks of servers.
• Industry – Restaurants, healthcare clinics, and manufacturers are at higher risk. Offices may pay less.
• Age and condition – Well-maintained, newer equipment is less likely to fail.
• Deductibles and limits – Like other insurance, higher deductibles can lower premiums but increase your out-of-pocket costs.
• Geography – If you’re in an area with frequent power surges or unstable grids, rates may reflect that risk.

Industry sources estimate premiums as low as $25–$50 per $50,000 of coverage. That means a business with $1 million in equipment could secure protection for around $500–$1,000 annually, or less than $100 a month.

Why SMBs Miss This Coverage

If it’s so useful and affordable, why do so many small businesses skip it? Here are the main culprits:

• They assume property insurance covers it. It doesn’t. Property insurance covers external perils: equipment breakdown handles internal failures.
• They think it’s just for “big industry.” In reality, small businesses with coolers, registers, and servers are just as vulnerable.
• They underestimate downtime. Spoiled food and lost sales add up faster than most owners realize.

Put simply, it’s overlooked because it feels optional—until the day it isn’t.

How to Add or Review Your Coverage

If you’re wondering whether you have this protection already, you’re not alone. Sometimes it’s included as an endorsement in a business owner’s policy (BOP). Other times it’s a separate add-on.

Here’s how to check:

1. Review your policy with your insurance agent. Ask directly if Equipment Breakdown is included.
2. List your critical equipment. HVAC, refrigeration, POS systems, servers, production machinery, and anything else that would halt operations if it failed.
3. Set coverage limits wisely. Factor in repair costs, replacement value, and potential lost income.
4. Balance deductibles. A slightly higher deductible can keep premiums manageable, but don’t leave yourself exposed.
5. Revisit annually. As your equipment ages or your business grows, adjust coverage to match.

5 Smart Questions to Ask Your Agent

Business owners are busy—there’s always another order to fill, another customer to help, another problem to solve. But when it comes to insurance, it pays to slow down and ask the right questions. A quick policy review with your agent can save you from surprises later. Start with these questions to make sure your Equipment Breakdown Coverage matches the way your business runs.

1. Is Equipment Breakdown already in my policy, or do I need an endorsement?
2. Which types of equipment are covered?
3. Does the policy include business interruption coverage?
4. What deductibles and limits make sense for my operation?
5. How often should I review coverage as my business changes?

Don’t Wait for the Breakdown

Every small business runs on equipment. You may not think of yourself as “equipment-intensive,” but when your cooler, HVAC, or server fails, you’ll feel it instantly. For most SMBs, Equipment Breakdown Coverage is a low-cost, high-impact safety net. A few hundred dollars a year could save you tens of thousands. Don’t wait until you’re staring at spoiled food, a silent production line, or a dead register. Talk to your insurance advisor, review your policy, and make sure you’re covered.

FAQ

Isn’t this just property insurance by another name?

Not quite. Property insurance covers external risks like fire or theft. Equipment Breakdown covers internal failures like a short circuit or motor burnout.

What equipment is typically included?

Boilers, HVAC, refrigeration units, servers, POS systems, industrial machinery, and more.

Does it cover business income?

Yes. Many policies cover lost income and extra expenses when a breakdown halts operations.

How much does it cost?

Often between $25–50 per $50,000 in coverage annually. For many SMBs, that’s $500–1,000 a year—less than $100 a month.

Is this only for manufacturers?

Not at all. Restaurants, retailers, healthcare clinics, and even offices benefit. If you rely on equipment to operate, this coverage matters.

Need to learn more about equipment breakdown insurance?

Our agents are ready to help, so contact us to learn how we can customize your insurance policies to meet your needs.

*Disclaimer: We offer content for informational purposes; Co-operative Insurance Companies may not provide all the services or products listed here. Please get in touch with your local agent to learn how we can help with your insurance needs.

Sources

Investopedia. Equipment Breakdown Coverage. https://www.investopedia.com/what-is-equipment-breakdown-coverage-8348546

Nationwide. What is Equipment Breakdown Insurance? https://www.nationwide.com/lc/resources/small-business/articles/what-is-equipment-breakdown-insurance

The Hartford. Equipment Breakdown Insurance for Small Business. https://www.thehartford.com/small-business-insurance/equipment-breakdown-insurance

LandesBlosch. Equipment Breakdown Insurance: The Ultimate Guide. https://www.landesblosch.com/blog/equipment-breakdown-insurance-the-ultimate-guide

SmartestDollar. Equipment Breakdown Insurance. https://smartestdollar.com/equipment-breakdown-insurance

Allen Thomas Group. What is Equipment Breakdown Coverage? https://allenthomasgroup.com/business-insurance-glossary/what-is-equipment-breakdown-coverage