Because it ranks high among the more exotic and frequently misunderstood property and casualty coverages, equipment breakdown coverage is often not adequately addressed in insurance programs. Yet it is too important to ignore in planning a comprehensive insurance program because not only does such a policy provide broad valuable protection, it complements a well-designed general commercial property insurance program to help ensure that a business or organization will survive and continue to prosper after a major loss.
Unlike most property and casualty coverages—where payment of losses and claim expenses is the largest part of the cost—with equipment breakdown insurance, if the inspection services are done properly and followed up to assure the correction of hazards, the largest cost factor is the underwriting, inspection and loss prevention service.
Key factors to consider in integrating this coverage into an overall insurance program are:
How much equipment breakdown insurance should be carried? The amount and limits of coverage can only be estimated by examination of the particular situation and making a “worst case” evaluation or loss projection. Avoid the common practice of insuring only for the value of the object being covered. For most items, a covered loss can also cause damage to property beyond the object itself. The cost of the additional coverage does not rise proportionally with the increased risk, so it is better to estimate on the high rather than the low side—and insure accordingly.