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What Coverage Do You Get under a Contractor’s Equipment Policy?

Contractor’s equipment insurance is an essential part of any construction firm’s insurance program. Commercial property insurance covers a business’s personal property while it is at a location listed on the policy, but it does not cover property that moves among different locations. Business automobile insurance does insure property that moves around, but it does not cover “mobile equipment” — property such as bulldozers, loaders, digging equipment, and power tools that the business uses off its own premises. Power tools may cost only a few hundred dollars, but large pieces like backhoes and excavators may be worth tens of thousands of dollars. To properly insure such property, the firm needs contractor’s equipment insurance.

A typical contractor’s equipment policy will cover the insured’s owned pieces of equipment listed on its declarations page or a separate schedule. It will also cover equipment that someone else owns and that is in the insured’s care, custody or control. For example, the policy will cover a loader that the insured borrows from another contractor on a job site or that it rents from an equipment dealer. It may also provide one amount of insurance to cover a group of less expensive items, such as power hand tools. For example, it might provide $10,000 coverage on tools but no more than $500 for any one item. It will not cover automobiles, trucks, aircraft, watercraft, contraband, and it may not cover equipment the insured uses in underground mining operations or equipment rented or loaned to others.

The policy will cover equipment for a variety of losses, including fire, explosion, vandalism, theft, collision with other equipment or objects, and overturning. Unlike standard property insurance policies, contractor’s equipment insurance often covers losses caused by floods and earthquakes.

Insurance companies usually offer several coverage options, such as:

  • Rental reimbursement coverage, which covers the cost of renting a temporary substitute when a covered cause of loss damages an insured item.
  • Reimbursement of income the insured loses when it cannot complete a project because a covered cause of loss has damaged an insured item.
  • Blanket coverage, which insures all covered equipment under one large amount of insurance instead of insuring each item under its own individual amount.

To purchase the proper amount of insurance, the firm must determine the values of each piece of equipment. A typical policy covers equipment for its “actual cash value,” which is the difference between the cost of replacing the equipment and the amount by which it has depreciated. Published equipment pricing guides, advertisements in trade magazines, and local equipment dealers are good sources of information on equipment values.

In addition to the other options available, an insured must consider factors such as:

  • Whether to pay extra to insure the equipment for its replacement cost without depreciation. This may depend on both the firm’s budget and the ease with which the firm can obtain used equipment should it need to.
  • Whether the policy has a coinsurance clause, which penalizes the insured if coverage on the damaged item is less than its value at the time of the loss. Some companies may offer “agreed value” coverage, which eliminates the coinsurance clause and requires coverage up to some agreed amount.
  • Whether to buy a higher deductible to decrease the premium.

Contractor’s equipment insurance is not just for contractors; municipal governments and any other organization that uses this type of equipment need it as well. A consultation with a professional insurance agent will reveal the organization’s coverage needs and the appropriate insurance companies to meet them. Because the equipment is so expensive, the buying decision should be based on coverage and a company’s reputation, not just the premium.