Insuring Your Equipment

Although our current discussion focuses on the use of property insurance to protect against losses that may occur to your business equipment, the same policy will also likely cover your real property and buildings, inventories, and other business assets. Furthermore, you should view your decision to secure property insurance for your equipment as being just one element of an overall insurance plan for your business (this plan also may include liability insurance and life and health insurance).

Warning If you work out of your home, don't assume that your business equipment will be covered by your homeowner's policy. In fact, most homeowner's policies contain a business use exclusion that denies coverage to business equipment, supplies, and inventories.

All-risks vs. named-peril policies. In shopping for property insurance for your equipment (and we do suggest that you comparison shop among different insurance companies when purchasing any insurance), look for a policy that's written on an "all-risks" basis as opposed to on a "named-peril" basis. An all-risk policy generally provides coverage for all risks or perils, excepting only those that the policy specifically identifies. In contrast, a named-peril policy covers only the specific risks and perils that the policy identifies. In theory, you may require a number of named-peril policies to provide the same scope of coverage offered by a single all-risk policy. For this reason, an all-risk policy reduces the chance that you'll have gaps in coverage or duplication of coverage. If you should decide to go with an all-risk policy, carefully review the enumerated exclusions. For those exclusions that you believe create an unacceptable risk to your business, try to get coverage on a named-peril basis.

Replacement value coverage. We also suggest that you carefully consider whether it's worth the extra premiums to secure a policy that provides replacement value coverage. Under this type of policy, you'll be covered for the cost of replacing your stolen or damaged equipment (subject to your policy's limit) rather than only for what you initially paid for the equipment.