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Don't Overlook Equipment Breakdown Insurance

Imagine it's a typical July day somewhere in the southern U.S. You own a 30,000 square foot office building that is 85 percent occupied. And the air conditioning and ventilation systems stop working. The outside temperature is in the 90's and the humidity is high. It doesn't take long before the tenants start to complain.

The contractor you summon determines that an electrical arc fried the circuit board that controls the systems. The board must be replaced, but it will take up to five business days for it to arrive. In the mean time, the building is unfit for people to work in, and the leases oblige you to credit tenants' rents for periods when the building in uninhabitable for more than a day. In short, you're looking at thousands of dollars to repair the system and much more in lost rents.

Worse, you find out that your property insurance does not cover any of this. You needed a type of policy called equipment breakdown insurance.

This type of insurance applies to certain types of property within a building, including:

- Equipment that generates, transmits or uses energy, including telephone and computer systems

- Equipment that normally operates under vacuum or pressure, such as heating boilers

With some exceptions, the equipment must be located at the address listed on the policy.

While other property insurance policies also cover these types of equipment, equipment breakdown insurance fills in gaps those other policies leave. Unlike these other policies, equipment breakdown insurance covers losses caused by:

- Mechanical breakdown, including rupture or bursting caused by pressure building outward from the object's center

- Electrical power surges that damage appliances, devices or wires

- Boiler explosions, ruptures or bursts

- Events inside steam boilers and pipes or hot water heaters and similar equipment that damages them.

Unlike other property insurance policies, equipment breakdown insurance applies if pressure within a device causes it to stop working or if a power surge or electrical arc damages it. It would reimburse the owner of the office building for the cost of repairing or replacing the damaged circuit board.

Policies can also provide coverage for income the business loses or extra expenses it incurs due to a covered accident. They also frequently provide limited coverage for certain losses, such as food spoilage in freezers that break down.

Equipment breakdown insurance is not a substitute for other property coverage. It will not pay for damage caused by fire, lightning, explosions from sources other than pressure vessels, floods, earthquakes, vandalism, and other causes of loss covered elsewhere. Equipment breakdown policies are designed to fill in the gaps left by other policies, not to replace them. Also, they do not cover mechanical breakdowns that result from normal wear and tear as a device ages.

Business owners often overlook equipment breakdown coverage. However, virtually all of them have some need for this insurance. Most businesses rely heavily on machines in their daily operations, from computers to refrigeration equipment to elevators to manufacturing equipment. For some, the cost of repairs to this equipment and resulting down time can have a serious impact. Such businesses should seriously consider buying this insurance.

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