Physical damage to any machinery or equipment in a factory can pose a big loss to the business. Factories need to be prepared for such breakdowns in order to continue working smoothly and overcome the loss. To meet with such eventualities, factories can purchase machinery breakdown insurance.
What is Machinery Breakdown Insurance?
Machinery breakdown insurance provides a security cover to the machines used by factories and industries. This insurance covers accidental breakdown and physical damage of the machinery, the cost of repairs or replacement of the damaged machine parts. Some insurance companies also offer riders to cover additional risks to the machinery or other aspects like cost, air-freight, machine foundation and customs duty, etc.
What Machinery Breakdown Insurance Covers?
The insurance policy covers the loss due to sudden and accidental machinery damage emerging from both internal and external causes. Some of the causes can be short circuit, structural defects, loosening of parts, excessive speed and lack of lubrication. Let us look at the situations when machinery breakdown insurance can be used:
- Machinery breakdown due to short-circuits, excess voltage, and electrical faulty design, faulty material, and faulty casting that manifest after the warranty period due to electrical and mechanical breakdowns
- Abnormal operating conditions of the machine
- Falling, impact and collision resulting in breakdowns
- Carelessness and lack of operating skills in the operations and management of machinery
- Turbines bursting, compressors, hydraulic cylinders or other apparatus which is subjected to centrifugal force or internal pressure
- Damage or loss due to initiation of fire from within the machinery is also included which is generally excluded from the standard fire protection policy
The protection is offered for machines both in working and in rest condition. Some other conditions are when dismantled or moved or re-assembled for cleaning, inspection or repair.
There are two scenarios representing replacement cost of the machinery:
- Partial Loss: In case of partial loss to the machinery, the coverage will include full cost of parts, including labour charges, air-freight charges, custom duty and the charges for dismantling and re-erection of the machinery.
- Total Loss: Sum insured in this scenario covers the actual value of items immediately before the occurrence minus the applicable depreciation value.
Certain extra coverage can be enjoyed on the payment of additional premium. These cases include express freight, air freight, custom duty and third party liability.
How Machinery Breakdown Insurance functions?
This insurance basically helps organisations using machines. It covers the loss that the business may face due to the sudden breakdown of the machinery. The organisation gets the money from the insurance company for the repair or replacement of the machinery as per the need and requirement. This insurance helps organisations grow by overcoming such losses.
The claim process for machinery breakdown insurance varies for different companies. Below are some general steps taken by the policyholder to initiate claim for this insurance:
- Insured must immediately notify the insurance company over the phone about the occurrence of the breakdown. The customer also needs to provide the information in writing, when asked by the insurance company staff
- Policyholder must give as much information as possible about the nature and extent of damage or loss incurred
- Insured must also take all reasonable steps to minimise the extent of loss or damage
- Policyholder must preserve all the damage or defective parts in the machinery for an inspection by the insurance staff
- Policyholder must provide the complete documentary evidence to the company and support in the claim investigation process
- Once the investigation report is successfully completed by the insurance staff and all the documents are verified by him, the insurance company triggers the claim settlement
- Policyholder submits all ID proofs and other documents required to settle the claim amount as reimbursement and receive the amount in his/her bank account
- Policyholder can reach out to the Branch Manager/Regional Manager of the insurance company in case he/she is not getting full support from the insurance staff for the closure of the case
Documents Required for Claim Process
To get the claims under machinery breakdown insurance, a policyholder needs to submit ID proofs, along with the policy document, invoice of the machinery, statement from the engineer stating the type and level of breakdown.
Machinery breakdown insurance can be availed by machine owners of large-scale organisations or MSMEs of India. However, there are various exclusions in the policy. Let’s review some exclusions based on the two categories – General Exclusions and Special Exclusions.
- General Exclusions: This includes war, civil war, riots and strikes
- Special Exclusions include the following:
- Fire and allied perils, theft, etc.
- Loss or damage as a result of to overload experiments
- Gradual development of abnormalities, defects, cracks etc. in any part being ignored regularly in spite of knowing it demands repair
- Regular wear and tear of the machinery
- Pre-existing faults or defects in the machinery before the policy commencement
- Loss of use of the machinery due to conditions in the plant or factory or any other kind of consequential loss incurred by the insured
- Loss or damage because of explosions in chemical recovery boilers
- Damage to belts, chains, ropes, rubber tyres or any other exchangeable tools unless any loss or damage to the machinery is indemnifiable
Companies Offering Machinery Breakdown Insurance in India
Some of the insurance companies in India offering machinery breakdown insurance are:
- HDFC ERGO
- SBI General
- Royal Sundaram
- IFFCO-Tokio General Insurance
- ICICI Lombard
- After making the claim, the insured cannot leave the property whether the company has taken the possession or not
- As from the day of loss, the sum insured for the remaining period of insurance will be reduced by the amount of compensation
- Premium will be calculated from the day the repaired item is put to work
Advantages of Machinery Breakdown Insurance
Some of the benefits under this insurance policy are:
- Reimbursement of the sum insured for the machinery and insured parts helps the business owner overcome the losses
- It also protects other additional coverage items like air-freight, customs duty and labour charges, etc.
- Some insurance companies also offer business interruption claims under the policy and offer discounts to policyholder to compensate for business losses in the absence of running the machinery
- It provides comprehensive coverage to the machinery thereby giving great peace of mind to the business owners covering loss due to unskilled machinery operators, cranes or lift forks, etc.
- Some plans cover detailed electrical, mechanical and electronic faults that may result in the complete or partial breakdown of the machinery
- Insurance companies provide great customer support options to machinery owners and the process of claims is easy and transparent
- Third-party coverage is also included in some of the policies
Q1. How much is the premium amount for Machinery Breakdown Insurance?
The premium amount depends on the type of machinery to be insured. One can choose various rider options also. Based on number of factors, the sum insured and the premium amount are calculated by the insurance company.
Q2. Is the insured machinery eligible for claims only if the loss or damage has occurred in the operational condition?
No, the policy covers the machinery in mostly all conditions, including operational, dismantled, re-erected or in an idle state.
Q3. Is the loss or damage to the machinery caused by the operator covered in the machinery insurance plan?
Yes, the carelessness or negligence by the operator is covered in the insurance plan but a deliberate attempt due to excessive limit testing or experimentation is not covered.
Q4. What are policy add-ons or rider options available with the policy?
Below are some of the policy add-ons or rider options:
- Damage to the foundation of machinery
- Damage to oil in the electrical apparatus
- Express Freight, including holiday rates, overtime charges
- Third-party liability
- Additional Customs Duty