A machine breaking down can be catastrophic for a small business. In many cases, the repair alone costs more than the price of buying a new one. And when you’re just starting up as an entrepreneur, every shilling counts. One way to protect your business from this kind of risk is by purchasing machine breakdown insurance. It may not be something you think about; however, this type of insurance can help protect your business from the unexpected in case of emergency repairs. Let’s take a look at some key benefits of purchasing this type of insurance and see if it’s right for your business. Read on to learn more!

What is Machine Breakdown Insurance?

Machine breakdown insurance covers the cost of replacement if a key piece of equipment fails. It’s often referred to as “contents insurance” or “business equipment coverage”, where small businesses often have separate policies for their inventory and their equipment. It’s important to note that this type of insurance does not cover repair costs for your equipment. Instead, it provides a replacement value payment to buy new equipment if your machine breaks down. The premium amount you pay is typically calculated based on the value of your equipment. If a piece breaks or malfunctions, you submit a claim and the insurance company pays you a certain amount to buy a new equivalent machine.

The amount you receive typically covers the cost of the new equipment, plus a bit extra for the inconvenience of having to replace it. The equipment doesn’t have to be new; the insurance company can choose any make or model as long as it’s equivalent to the one that broke down. Machine breakdown insurance doesn’t just cover manufacturing equipment. It can also protect your business if key tools or office equipment fails. Some policies are even designed to provide coverage for items as diverse as your computer, fax machine, and items in your inventory.

How Does Machine Breakdown Insurance Work?

If a machine in your business breaks down and requires repair, you have two options: You can either fix it, or you can replace it. As an entrepreneur, you’ll likely be paying for both of these things out of your pocket, but with machine breakdown insurance, you’ll have the funds available to cover the replacement costs. There are a few different ways machine breakdown insurance can work.

Your policy might be a “claims-made” policy, in which you’re covered for any equipment breakdowns that occur during the term of your policy, as long as you file a claim within a certain time frame (typically 30 to 90 days). Alternatively, you could have an “occurrence” policy that covers equipment breakdowns that happen during the term of your policy, even if you don’t report them right away. Most policies are “claims-made,” and many will provide coverage retroactively if you purchase the policy and then report the breakdown later.

By its very nature, Machinery breakdown insurance is all risks insurance for machinery, supplementing the coverage afforded by Fire insurance. Thus it covers unforeseen and sudden physical loss of or damage to the insured’s items, necessitating their repair or replacement. Loss or damage covered under Machinery insurance is mainly due to one of the following causes:

• Faulty design (calculations, plans, drawings and specifications), faults at the workshop or in erection, defects in casting and material
• Faulty operation, lack of skill, negligence, malicious acts
• Tearing apart on account of centrifugal force.
• Physical explosion, fuel gas explosion in boilers
• Short-circuit and other electrical causes
• Shortage of water in boilers
• Storm, frost, drifting ice.

The individual exclusions from the cover mainly comprise loss or damage caused by:

• Fire, lightning, chemical explosions, burglary and theft, i.e. perils covered or coverable under other policies (loss or damage indirectly caused by lightning being included in the cover)
• Inundation, flood, earthquake, subsidence, landslide, the impact of land borne, waterborne or airborne craft.
• Wear and tear as a consequence of ordinary use or operations as well as cavitation, erosion, corrosion (e.g. rust) or boiler scale (this exclusion relates, however, only to the parts immediately affected.)
• War or warlike operations, the civil commotion of any kind as well as acts on the part of strikes and locked-out persons
• Willful acts or gross negligence on the part of the Insured or of his representatives.
• Faults or defects existing at the time of commencement of the insurance which ought to have been or were known to the Insured.
• Faults or defects for which the supplier is responsible either by law or under contract (losses covered by warranty)
• Nuclear reaction, nuclear radiation or radioactive contamination

Benefits of Machine Breakdown Insurance

• Protects Against Big-Ticket Items – A major benefit of machine breakdown insurance is that it protects you against big-ticket items that may break down or fail. If a piece of equipment costs say maybe Ksh 1,000,000 to repair, you may be able to get a new one for significantly less.
• Covers Loss of Income – A broken machine can create downtime and affect your ability to produce a product or provide a service. It can also reduce the value of your business if a customer can’t be served because you have a broken piece of equipment.
• Protects Your Reputation – If you have a customer that requires a certain machine for a service that they are paying you for, and it breaks, you’re responsible for fixing it. You might have to let a customer down if you don’t have enough money to buy a new machine.

When Should You Get It?

You should consider getting machine breakdown insurance if one or more of your key pieces of equipment has a high risk of breaking down, or if it’s very expensive to replace. If you’re just starting, it may be difficult to determine how much you should spend on each piece of equipment. That’s where machine breakdown insurance can come in handy. It can provide coverage if a machine breaks down, while also helping you determine how much you should spend on each item. It’s important to note that machines don’t have to be brand new to be covered under your policy.

They just have to be capable of doing the same job as the broken machine. For example, if your laser breaks and it’s the only way you can cut certain materials, you might need a new laser. If you’re unable to get the same brand and model, your insurance company might replace it with a different laser that performs the same function.

Is Machine Breakdown Insurance Right for Your Business?

Machine breakdown insurance provides a type of protection that many other business insurance policies don’t. It also provides an element of financial certainty that’s hard to find in other forms of insurance. That said, it’s important to weigh your options and determine if machine breakdown insurance is right for your business. First, figure out what types of machines are essential for your business. After all, you can only file one claim per year for each type of equipment. Next, determine how much each machine costs.

Finally, add up the cost of replacing each piece of equipment. If the total amount is more than your budget, you may want to explore other forms of protection. Machine breakdown insurance won’t cover every type of risk your business faces. For example, it doesn’t protect against natural disasters like floods or fires. It also doesn’t cover theft or vandalism. That said, it can provide a level of protection that’s hard to find in other forms of insurance.

Avoiding the Con Artists: Check Out These Tips Before You Buy

Before buying machine breakdown insurance, you should always ensure the company you’re dealing with is reputable. Here are a few tips to help you avoid con artists:

• Shop around. It’s important to shop around and compare rates to make sure you get the best deal for your business.
• Get quotes from multiple providers. If you are looking for coverage from a specific insurance company, ask them for a free machine breakdown insurance quote.
• Ask about exclusions. Be sure to read the fine print before making a decision.
• Check for complaints. You can check for complaints with your state’s insurance regulator or the National Association of Insurance Commissioners.
• Ask for proof of coverage. Be sure the company you choose is licensed and has the necessary proof of coverage before purchasing a policy.

Bottom line

Machine breakdown insurance is a type of coverage that protects against critical pieces of equipment breaking down inside your business. It’s not something that every business needs, but it’s important to understand the benefits of this type of coverage and how it works. Before you decide to buy machine breakdown insurance for your business, be sure to weigh the pros and cons and shop around for the best deal.