Contractor Tools & Equipment Insurance 101

Are you a commercial contractor who wants to ensure that your business is safe from tool and equipment damage or theft? Tools are your lifeline, and without them, you may be unable to complete jobs.

Equipment insurance can help you protect your business by offering tool and equipment:

• Repair
• Replacement

If you have insurance already, look through your policy to ensure that you have equipment insurance.

Construction Equipment Insurance Coverage

Equipment insurance is a special insurance designed to protect contractors. These policies are written to protect your tools and equipment, often the most important assets of your business. A few times when this policy is used by contractors is when items are:

• Stolen
• Lost
• Damaged
• Vandalized

Often, newer tools and equipment that are five years old or newer are covered. Older tools are not covered due to the traditional wear and tear that they sustained by a commercial contractor.

Many contractors will add this coverage to their commercial property insurance.

Who Needs Contractor’s Equipment Insurance Coverage?

Whether you own, rent or lease tools and equipment, this coverage will extend to all of these scenarios. For example, if you rent a generator for a job or another type of equipment and it’s stolen or damaged, you can file a claim to replace the item.

Contractors of any type who go to multiple job sites can benefit from equipment insurance.

In the rare scenario that you only use equipment that is older than five years old, then this insurance won’t make sense for you.

Otherwise, multiple categories of businesses may want contractor tools and equipment insurance, including:

• Event businesses
• Solar companies
• Medical diagnostic equipment
• Cargo businesses

Even if the equipment is secure at a job site, there’s always a risk of damage in a car accident. Protecting your own tools and equipment or items you lease or rent will provide peace of mind that if something happens to these items, they’re likely to be covered,

What is Covered Through Business Equipment Insurance?

Contractor tools and equipment insurance will cover any movable equipment or tools your business uses against damage, theft or losses. It does not cover normal wear and tear.

If someone steals your tool bag from a job site, then your equipment insurance policy will kick in to replace your items (up to your policy’s limit).

Coverage may vary from one insurance company to the next, but generally, this type of policy will protect against:

• Vandalism
• Tool theft
• Misplaced or lost items
• Damage done to rented or leased items
• Equipment breakage

There are several things that contractor’s equipment insurance does not cover in addition to general wear and tear, including:

• Deliberate misuse or breakage
• Items that are over 5 years old
• Items that are valued over $10,000

Replacement vs Actual Value

You may be insured under one of two different value calculations:

1. Replacement cost is when the insurer replaces the item with another that is of a similar kind or quality. The tool will function the same, but it may not be from the same brand. Additionally, equipment will offer similar specs, but it may not be an exact replacement if one cannot be found.
2. Actual value replacements are a bit different because the value is determined by the actual cost of the item minus depreciation. So, if the tools are one or two years old, the depreciation may be 20% – 40%+ of the tool’s original value. Some pieces of equipment depreciate rapidly, meaning that you may receive an insufficient amount of money for the item.

In most cases, it’s better to have insurance that considers the replacement cost of the tools and equipment because it will ensure that you’re made whole again. Otherwise, if the actual value of the item has depreciated, you may receive far less money than is necessary to replace the item(s).

Cleanup of Pollutants from Damaged Equipment

Some tools and equipment insurance policies will also cover the cost of cleaning up and removing pollutants from a covered loss.

For example, if a piece of equipment breaks and leaks fuel or another contaminant on the job site, equipment insurance may cover the cost of cleaning up the mess.

Equipment Insurance Coverage Limits

Contractors equipment insurance coverage is a type of inland marine insurance that covers equipment and tools under $10,000. In most cases, you can add this type of insurance to your commercial property coverage (if you have it).

Some policies have a limit on how much you can claim per tool, typically around $700 per item.

If you have equipment that is valued at more than $10,000, you will need to obtain inland marine insurance to protect your gear.

How Much Does Tool Insurance for Contractors Cost?

Because the coverage limit on contractor’s tool and equipment insurance is typically under $10,000, the cost for this coverage is affordable.

Of course, the cost of your policy will depend on a few factors, such as:

• The value of your tools and equipment
• Level of industry risk
• How often you move your property
• The coverage type (open or name perils)

Many policyholders pay just $14-$28 per month for their coverage. If your tools play a vital role in your day-to-day operations, this is a small price to pay for peace of mind that your tools will be replaced if needed.

Some insurers will offer incentives for outfitting equipment with GPS or tracking devices. For example, if a piece of equipment with a GPS tracker is stolen, the insurer may waive the deductible. Incentives such as these benefit your business and can help save you money if you ever need to file a claim.

Other Types of Insurance to Consider

Tools and equipment insurance provides valuable protection for your tools. But there are other coverages that you should also consider to help protect against risk, such as:

• General liability or a Business Owner’s Policy (BOP)
• Commercial auto insurance (especially if you transport your tools in your truck)
• Commercial property insurance if you operate out of a brick-and-mortar building
• Workers’ compensation if you have employees

These policies will provide more protection against liability, property damage, injuries and more. Consider sitting down with an insurance agent to discuss your business and other types of coverage that you may need to protect against risk.

Equipment insurance is a must-have for contractors and other individuals who use their tools and equipment in their daily work. Just make sure that you understand the details of your coverage and your limits. If the value of your tools and equipment ever exceeds $10,000, you will need to purchase an inland marine insurance policy to protect your items.