Your HVAC system just died in the middle of summer. Your computer server crashed without warning. Your commercial refrigeration unit stopped working overnight, spoiling thousands of dollars in inventory. Here's the problem: your standard property insurance won't cover any of it. Why? Because these failures happened from the inside—a mechanical breakdown, an electrical short, a power surge—not from external damage like fire or theft.
That's exactly where equipment breakdown coverage comes in. It's designed to protect you from the kind of failures that happen every day to businesses and homeowners alike—the internal malfunctions that can cost thousands to repair or replace. In 2023, HVAC failures alone rose by 18%, and equipment insurance claims averaged $75,000 per incident in heavy industries. Let's break down what this coverage actually does and whether you need it.
What Equipment Breakdown Coverage Actually Covers
Think of equipment breakdown coverage as insurance for when your stuff breaks from the inside out. Unlike your standard property insurance, which protects against external threats like storms, vandalism, or fire, equipment breakdown coverage steps in when mechanical or electrical systems fail due to internal problems.
For businesses, this coverage typically protects computer-controlled equipment, security and alarm systems, electrical panels and distribution systems, heating and cooling systems, hot water heaters, emergency generators, refrigeration systems, and even elevators and lifts. For homeowners, you're looking at coverage for HVAC systems, water heaters, kitchen appliances like dishwashers and ranges, washing machines and dryers, backup generators, swimming pool equipment, and home automation systems.
The types of failures covered include electrical shorts, power surges, mechanical breakdowns, motor burnout, loss of air pressure or vacuum, and even operator error that damages equipment. Some policies also cover food spoilage if your refrigeration equipment fails. What's not covered? Wear and tear or gradual deterioration—everything eventually fails, and insurance won't pay for items past their useful life.
The Gap in Your Property Insurance
Here's what surprises most people: your property insurance and equipment breakdown coverage aren't competing—they're complementary. Your standard commercial or homeowners property policy protects against external causes of damage. Fire, hail, windstorms, theft, vandalism—those are all covered. But when your equipment fails because of internal issues like an electrical malfunction or mechanical breakdown, your property insurance specifically excludes that.
According to the U.S. Small Business Administration, about 30% of small businesses will experience equipment failure at some point. The average repair cost runs around $5,000, but major replacements can hit $25,000 or more. For homeowners, equipment breakdowns can cost upwards of $11,000 in repairs and replacements. A Consumer Reports survey found that more than 20% of new appliances fail within the first four years. That's not a small risk.
For businesses especially, the coverage often extends beyond just repair or replacement costs. If your operations grind to a halt because critical equipment failed, many policies include business interruption protection to cover lost income while you're getting back up and running. That can be the difference between a temporary setback and a financial disaster.
Real-World Scenarios Where This Coverage Saves You
Let's get specific. Say you run a restaurant and a power surge fries your commercial refrigeration system overnight. You lose $8,000 worth of food inventory, and the unit itself needs $15,000 in repairs. Equipment breakdown coverage handles both—the spoiled food and the repairs. Your property insurance wouldn't touch this because nothing external caused the damage.
Or imagine you're a homeowner and your HVAC system's compressor burns out in July. The replacement cost is $6,500. Without equipment breakdown coverage, you're paying that out of pocket. With it, you file a claim and get it covered minus your deductible. Same goes for a technology company whose server crashes due to an electrical short, damaging critical computer systems. Equipment breakdown coverage steps in to repair or replace the damaged hardware.
These aren't rare edge cases. In 2023, nearly 58,000 equipment breakdown policies were underwritten in the United States alone—a 17% increase from the previous year. In fact, 44% of all equipment insurance claims globally that year were filed under machinery breakdown coverage. The risks are real, and they're common.
What It Costs and How to Get It
The good news? Equipment breakdown coverage is surprisingly affordable. For homeowners, adding this endorsement to your existing homeowners policy typically costs $25 to $50 per year. For $100,000 in coverage, you might pay as little as $36 annually. That's less than the cost of a single service call for most appliances.
For small businesses, you're looking at anywhere between $300 and $1,000 per year, depending on the value of your equipment and the level of coverage you need. The average runs around $800 annually. Factors like equipment type, business size, and location affect the price, but it's generally a fraction of what you'd pay out of pocket for even a single major equipment failure.
Equipment breakdown coverage is available as an endorsement to commercial property insurance, a business owner's policy (BOP), or a homeowners policy. You don't need a separate standalone policy in most cases—just add it to what you already have. Talk to your insurance agent about your specific equipment and get a quote. Make sure you understand what's covered, what the deductible is, and whether business interruption coverage is included if you're a business owner.
Is Equipment Breakdown Coverage Right for You?
If you own or lease a business with critical equipment—HVAC systems, computer servers, refrigeration units, electrical panels—this coverage is worth serious consideration. The cost is low, and the potential payout is high. For homeowners, it depends on your risk tolerance and the age of your major systems. If your HVAC, water heater, or major appliances are more than a few years old, the peace of mind might be worth the $30-$50 annual cost.
Remember, this isn't about wear and tear or routine maintenance—those are still your responsibility. But when unexpected internal failures happen, equipment breakdown coverage ensures you're not facing a five-figure repair bill with no safety net. Given how common these failures are and how affordable the coverage is, it's one of those endorsements that makes sense for most people. Talk to your insurance provider, review your equipment, and make an informed decision based on your specific situation.
