Claim in Machinery breakdown insurance policy covers loss due to sudden and accidental machinery damage. Damage could be a result of internal and external causes. The cover is offered for machinery in both workings and in rest conditions.
Key Takeaways
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Dual State Protection Continuum: The policy provides comprehensive coverage for processing equipment, protecting assets whether they are in active working conditions or at rest.
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No Old for New Penalty on Spares: During a partial loss settlement, the underwriter compensates the policyholder for the full cost of replacement components without applying usage depreciation to individual spares.
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Comprehensive Logistics Indemnity: The policy covers more than just the physical components; it handles the extra costs of air-freight charges, customs duties, and re-erection.
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Net Value Settlement for Total Losses: If an asset faces a total loss, the claim is evaluated based on the insured value less usage depreciation and salvage income.
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Mandatory Policyholder Risk Control: Policyholders must take active steps during a crisis to minimize the extent of loss and preserve all broken parts for the surveyor.
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The Compulsory Insured Franchise: Every claim filed under this framework is subject to an excess stated in the policy schedule, which represents the financial portion borne by the insured.
We have highlighted a few situations below that lead to machinery damage –
- Short circuits, excess voltage, faulty electrical designs,
- Operating the machine in excess of prescribed norms,
- Collision or impact leading to machine damage,
- Improper maintenance,
- Lack of operating skills,
- Damage due to centrifugal force or internal pressure,
- Initiation of fire from within the machinery due to excessive heating, etc.
Inline is the process that the policyholder needs to follow to file for a claim in machinery breakdown insurance policy –
- Immediately notify the insurance company in writing about the occurrence
- Provide as much information as possible about the nature and extent of loss
- Take all possible steps to minimize the extent of loss
- Facilitate inspection by the surveyor of the insurance company
- Preserve all damaged machinery parts
- Provide all necessary documents to the insurance company in support of the claim including a repair estimate from the service engineer
The machinery breakdown policy will cover the cost of repairs or replacement of the damaged machine parts.
Summary Table: Underwriting Framework and Indemnity Protocols for Machinery Breakdown (MBD) Insurance
| Operational Phase / Loss Type | Technical Settlement Trigger | Eligible Component Expenses | Underwriting Deductions & Deductibles | Risk Minimization Mandate |
| Partial Loss Scenario | Damage can be repaired; machine can be fully returned to its prior working condition. | Cost of spares, labor charges, air-freight, customs duties, and dismantling/re-erection. | No depreciation on parts; net settlement remains subject to the specified policy excess. | Policyholder must act immediately to minimize the loss and preserve all damaged parts. |
| Total Loss Scenario | Damage is beyond financial or physical repair, requiring a complete equipment replacement. | Reimburses up to the total agreed insured value of the machinery. | Reduced by usage depreciation and any income generated from salvaging the machine. | Policyholder must provide original invoices, repair estimates, and certified engineer logs. |
| Active Operation & Rest | Electrical or mechanical failures during active operation or at rest. | Internal fire from overheating, centrifugal force damage, and electrical short circuits. | Excludes standard wear and tear, gradual deterioration, or pre-existing manufacturer faults. | Demands proper maintenance and adherence to the machinery’s prescribed norms. |
Let us explain how the insurer settles the claim in the two given scenarios –
- Partial Loss: In the event of partial loss machine can be repaired and brought back to working condition. Hence the insurance company pays for the cost of spares, labor charges, air-freight charges, customs duties, and charges for dismantling and re-erection of the machinery.
- Total Loss: In the event of total loss machine cannot repair and hence, needs replacement by a new one. In this scenario, the insurance company settles the claim as per the insured value of the machineless usage depreciation and income from salvaging the damaged machine.
Kindly note that the machinery breakdown policy is subject to an excess as stated in the policy schedule which is to be borne by the insured.
Frequently Asked Questions (FAQs)
1. What is machinery breakdown insurance and what types of damage does it cover?
Machinery breakdown insurance is a specialized engineering policy designed to protect businesses from financial losses when operational plant equipment breaks down unexpectedly. The policy covers sudden and accidental machinery damage caused by both internal issues (such as short circuits, excess voltage, or centrifugal force) and external issues (like physical collisions or impact). It covers the equipment whether it is running or at rest.
2. How does an insurance company calculate a partial loss claim for damaged machinery?
When a machine can be repaired and returned to service, the underwriter treats the claim as a partial loss. In this scenario, the insurer covers the cost of spares and labor charges, along with associated shipping and setup costs like air-freight charges, customs duties, and the dismantling and re-erection of the machinery. Notably, standard underwriters do not apply usage depreciation to the new spare parts used in these repairs.
3. What is the claim settlement process for a total loss under a machinery breakdown policy?
A total loss is declared when the machinery cannot be repaired, or the cost to fix it exceeds its actual value. The insurance company handles the claim based on the insured value of the machine. However, the final payout is not the price of a brand-new machine; it is calculated by subtracting usage depreciation and any income earned from salvaging the damaged machine from the total insured value.
4. What steps must a business take immediately after a major machine breakdown occurs?
To keep the claim valid, the policyholder must follow a structured process right away:
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Immediately notify the insurance company in writing about the incident.
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Provide clear details regarding the nature and extent of the loss.
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Take immediate, reasonable steps to minimize the extent of the loss and protect surrounding assets.
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Preserve all damaged machinery parts and keep the site intact for the insurance company’s surveyor.
5. What documents are required to file a machinery breakdown insurance claim?
To receive a timely reimbursement, the insured party must submit a complete documentation package to the claims adjuster. This package includes the original insurance policy schedule, the asset purchase invoice, logbooks showing proper maintenance, and a formal repair estimate from a qualified service engineer outlining the exact cause of the breakdown.
6. What is a policy excess in machinery breakdown insurance and who pays it?
The policy excess is a mandatory deductible stated in the policy schedule that must be paid by the insured party for every single claim. It represents a small, pre-agreed percentage of the machine’s sum insured or a fixed flat fee. The insurance company subtracts this excess amount from the final calculated payout, meaning the business must cover this portion of the repair or replacement cost out of pocket.
About The Author
Rajesh Mehta
MBA Finance
Rajesh has become a distinguished expert in liability insurance with over 8 years of extensive experience in the insurance industry. As a dedicated writer for SecureNow, he crafts insightful and informative blogs and articles that help businesses and individuals understand the nuances of liability insurance, from policy details to industry trends. Throughout his career, Rajesh has developed a profound knowledge of various types of liability coverage, including professional, general, and product liability insurance. Their expertise enables them to break down complex topics into accessible content, making it easier for readers to make informed decisions about their insurance needs.
