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Do You Need Equipment Insurance? [Renter’s Guide to Insurance]

By Seth Hird | Posted on August 25, 2022

General Insurance Education| Equipment Industry| Construction Industry

Question:

Are you renting equipment and want to know if you should get insurance? Do you need equipment insurance or is it optional? Let’s discuss.

Context:

When someone goes to rent a piece of equipment, they are generally concerned with the answers to two questions.

  1. Is the machine I want available?
  2. How much will it cost (what’s the rental rate)?

Conversely, the dealer is concerned with a different set of questions.

  1. How reliable is this renter? (Are they a contractor, a DIY’er, an experienced operator, etc.?)
  2. Do they have insurance?

The renter wants to get in, get out, and start their project. The dealer wants to rent out their equipment but also wants to ensure that their equipment comes back in the same condition as when it left. However, if an accident occurs the dealership wants to ensure that it is protected.

Dealership Requirements for Renters

Every dealership operates differently. Unless you are renting from a small dealership with only a few pieces of equipment, some “industry standard requirements” should be at play. Nationwide dealerships such as Caterpillar, Komatsu, Kubota, and Bobcat typically require one or both of the following things from their renters.

Liability Coverage

A 1-million dollar liability policy is typically required to rent equipment. This policy can, however, is able to take different forms. The policy can run through your homeowner’s policy or business policy. If you do not have liability coverage, renting equipment from a nationwide dealership may be difficult.

Physical Damage Coverage

Again, most nationwide dealerships will require renters to have a coverage policy that protects the equipment. Some contractors and companies will have a policy through their business that protects rental equipment. However, some renters don’t have that option. In these cases, the dealership will offer some sort of loss damage waiver.

Insurance / Loss Damage Waiver Example: Sunbelt Rentals’ Rental Protection Plan

Equipment Insurance – What to Look for

Firstly, not all loss damage waivers are created equally. The coverages that are included in a loss damage waiver can vary drastically. So, here are some helpful things to look for.

Price

This is a rather elementary point, but the price can vary. Renters can expect to pay anywhere between 15%-18% for equipment coverage. Calculating the cost of the insurance upfront will mitigate any surprise fees.

Example:

$200 per day x 3 day rental

$200 x 3 = $600

$600 x 15% = $90 Insurance Cost

Coverages:

All-risk Policies – Policies such as REP™ that offer all-risk coverage are not available at every dealership. However, when used, they greatly benefit the renter and the dealer in the event of a loss. REP™ all-risk coverage means that unless it is expressly stated as an exclusion, the damages will be covered.

Fire Theft and Vandalism (FTV) – If you see FTV on a damage waiver, it means that the policy you get from the dealership will protect against damages to the equipment caused by fire, theft, and vandalism. According to the JT Bates Group claims, throughout 2021, 17% of all equipment claims are caused by fire theft and vandalism. This, of course, is not the broadest coverage available, but if you need equipment insurance, it is better than nothing.

Exclusions:

Renters should meticulously review the damage waiver program offered by the dealership. It is possible that the coverages offered seems sufficient, but it doesn’t fit your needs.

Example: The damage waiver covers fire, theft, vandalism, falling objects, and floods. However, you’ve been contracted to complete some rock removal on the side of a hill, and overturns are a concern. So, even though coverage can be broad, it doesn’t mean that it fits your needs.

Conclusion:

If you’re a business owner trying to rent equipment you might be able to deny the insurance offered by the dealer because you have coverage through your existing policy. However, if you’re an individual without business insurance, you will most likely need to purchase the dealer insurance per their requirements.

Regardless of the insurance you choose, take special care to review the policy to ensure that you’re properly protected.

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