Tools and equipment insurance: Do I need it?

What is tools and equipment insurance?

Tools and equipment insurance, also known as equipment floater or contractor’s equipment insurance, is a form of insurance that covers business property while being transported, used or stored at a location other than your fixed company address. 

As the name suggests, this type of small business insurance is intended for contractors, tradespeople, technicians and others who work on-site. 

“Tools and equipment coverage covers small unscheduled tools and equipment that are valued at $2,500 and under for each item. If you have items worth more than $2,500, they will need to be scheduled,” Melsopp says. Unscheduled means that items are covered without being individually listed or itemized on a policy.

Melsopp says there is usually no limit on how much coverage you can add for total tools and equipment. 

“But after the limit reaches $10,000, we are going to confirm the items to make sure you aren't adding anything that is not covered,” she says.

Tools and equipment insurance is typically offered as an add-on to a general liability or business owner’s policy (BOP), although it may also be available as a standalone policy. Although not mandated by law, it may be required as part of a contractual agreement. Depending on the policy, it may also cover rented or borrowed equipment, Melsopp says.

What does tools and equipment insurance cover?

Contractor’s equipment insurance covers tools and other work-related gear that you or your workers transport to and from or store at job sites; it also covers equipment you may store in your work vehicle. This can include hand or power tools, laptop computers, protective clothing and safety equipment, portable lighting and more. Depending on the insurer, it may also include rented or borrowed items.

Typically, tools and equipment insurance will provide coverage for the following perils, up to your policy limits:

• Theft or loss
• Vandalism
• Unintentional breakage

This coverage usually only applies to items less than 5 years old and valued at $2,500 or less each unless scheduled. Damage or loss due to fire or extreme weather events may or may not be included, depending on policy details.

“Most carriers cover tools at replacement cost, meaning they will replace property with a new one of similar kind and quality at current market prices, without deducting for depreciation,” Melsopp says.

What’s not covered by tools and equipment insurance?

As is the case with any form of small business insurance, there are some things that tools and equipment insurance will not cover. This includes:

• Normal wear and tear
• Intentional damage or misuse
• Vehicles used for business purposes

If you or your employees drive for work, you will need a commercial vehicle insurance policy.

How much does tools and equipment insurance cost?

The average monthly cost of tools and equipment insurance depends on the type of business you have. Premiums range from $14 to $38, based on rate data provided by Insureon.

Other factors affecting the cost of tools and equipment insurance include:

• The risk level of your industry
• The types of tools and equipment you’re insuring
• The total value of what you’re insuring
• Your coverage limits and deductibles
• Your claims history
• How frequently you transport your tools and equipment
• The number of people you employ
• Where your business is located

Which businesses should buy tools and equipment insurance?

If you or your employees transport tools and essential equipment to and from a job site or store it onsite, you should seriously consider insuring them. The following are just some examples of small businesses that can benefit from purchasing tools and equipment insurance:

• Cleaning and janitorial services
• Carpenters and woodworkers
• Electricians
• General contractors and subcontractors
• HVAC technicians
• Installation services
• Landscapers and tree-removal services
• Mobile mechanics
• Plumbers
• Welders

Tools and equipment insurance providers

The following carriers are among those offering tools and equipment insurance, also known as contractor’s equipment insurance, to small businesses:

• Chubb
• The Hanover
• The Hartford
• Liberty Mutual
• Next Insurance
• Progressive

How to get tools and equipment insurance for your business

You can add tools and equipment insurance to a new or existing general liability policy or a business owner’s policy. Talk to your agent or carrier representative about the best coverage for your needs. 

You may also be able to get a free quote and purchase tools and equipment insurance online. For example, Next Insurance customers can apply for and buy coverage in about 10 minutes, according to the insurer’s website.

How to save money on tools and equipment insurance

Here are some time-tested strategies for saving money on tools and equipment insurance:

• Shop around for the best price. As with other types of small business insurance, the cost of tools and equipment coverage can vary widely from insurer to insurer. Experts recommend getting quotes from three or more carriers so you can make an informed decision.
• Bundle your coverage. For example, choosing a BOP will be cheaper than purchasing general liability and commercial property insurance separately. For a small additional sum, you can add tools and equipment insurance to your policy.
• Pay your premium in full. Although most carriers offer the option of paying your premium every month, some will give you a small discount for paying your whole bill upfront. 
• Adjust your coverage limits and deductibles. Generally speaking, the higher your deductible, the lower your premium. Before choosing a higher deductible, review your finances to make sure you can afford the out-of-pocket cost should you need to file a claim. Similarly, choosing lower coverage limits also can reduce your insurance bill. Before doing so, talk to your agent or company representative to make sure that you’re still maintaining adequate coverage.
• Protect your investments. A business with a history of claims will pay more for insurance than one with a clean record. Take steps to mitigate the risk of theft by storing your tools and equipment securely at job sites, installing anti-theft equipment on vehicles used to transport goods and tools, and keeping a detailed record of all tool and equipment purchases, including purchase date, price, make and model.
• Review your policy annually. Your business needs will change over time. Perhaps you’ve had to scale back your business after losing a valuable contract. Whatever your present circumstances, it’s a good idea to review your coverage every year before renewal time to see if your needs have changed. If so, talk with your agent or carrier representative about adjusting your policy accordingly.

What our expert says

Q: Who should get tools and equipment coverage?

Christine Melsopp Digital sales agent, Insureon.

"Tools and equipment insurance is designed primarily for construction, contracting or installation professionals who work at a variety of different job sites. [It] doesn’t cover normal wear and tear, but it does pay for repairs or replacement if tools are lost, damaged and/or stolen."