Machinery Breakdown (MBD) Insurance Policy
Machinery and equipment’s are the backbone for any business. Sudden mechanical breakdown may result into temporarily suspension of the business operations. Further to restore the same there is an extra cost of repair/ replacement is involved.
Machinery Breakdown Insurance covers such sudden mechanical breakdowns.
Machinery and Equipment used in various industries are exposed to unforeseen risks and sudden mechanical or electrical breakdowns resulting in loss or damage. Such losses may be repairable or may sometimes need replacement.
Machinery Breakdown is designed to provide coverage for machinery against any unforeseen and sudden physical loss or damage necessitating its repair or replacement due to causes such as Plant, Machinery & Equipment (Mechanical / Electrical) can be covered under this policy.
The policy covers the insured machinery plant and equipments while at work, at rest, being dismantled or shifted or re-erected (if undertaken in the same premises) against unforeseen and sudden physical loss or damage due to any cause not otherwise excluded.
The sum insured should represent the present day new replacement value that included freight and customs duties (if any), erection costs, installation charges and incidental expenses.
It covers unforeseen & sudden physical loss mainly due to:
- Faulty design, faulty erection, defects in casting and material.
- Faulty operation, failure of safety/ lubrication/ control systems.
- Tearing apart due to centrifugal forces.
- Short circuit, excess voltage.
- Water shortage in boilers.
- Damages due to human element, lack of skill, negligence.
The policy can be extended to cover third party liability, express freight, holiday & overtime wages, air freight, escalation.
Machinery Loss of Profits Insurance Policy
This policy can be taken only if there exist Machinery Breakdown Policy for the risk.
It covers loss of Gross Profit due to cessation of business as a consequence of damage to machinery insured by operation of insured peril. The Gross Profit is sum total of Net Profit & Standing Charges. In other words, it covers.
- To make good the loss of the net profit due to stoppage of business as a result of an insured peril.
- To pay the standing charges which continue to accrue in spite of stoppage of business.
- To pay the additional expenditure incurred by the insured to maintain normal activity during the period in which the business is affected.
- The indemnity period commences with the date of damage and lasts till such a time as the business is restored to its pre damaged level or the period stipulated policy whichever comes first.
- The policy insures earnings of the business lost during the indemnity period.
- The consequential loss policy will follow the coverage of Material Damage policy (Machinery Breakdown Policy). It is a condition of the consequential loss policy that for any loss under the policy will be payable only if the claim under Material Damage policy (under Machinery Breakdown Policy) is admissible.
- It will not be possible to extend any peril in the consequential loss policy unless the peril is also an extension to the Material Damage policy (Machinery Breakdown Policy).
- But, there are some covers which are critical in the consequential policy that can be extended to make the policy more comprehensive.
The insurance cover, terms & condition, rates are largely based on the policy rates under Machinery Breakdown policy, the indemnity period, whether the manufacturing process is continuous or, departmental, criticality of the machines, spares available, preventive maintenance, repair facilities and claims experience etc.