The Answer in 60 Seconds
A Property All Risks (PAR) policy covers your machinery against sudden external damage: fire, impact, water from a burst pipe, a falling object, a storm. It is built around accidental physical damage from an outside cause. What it almost always excludes is the machine breaking from the inside: a motor that burns out, an electrical short, a compressor that seizes, a pressure vessel that fails. That internal failure is the job of a separate policy, Equipment Breakdown (also called machinery breakdown, or boiler and machinery cover).
The two are not alternatives. They sit on opposite sides of the same machine. PAR answers "something hit it, flooded it, or burned it." Equipment Breakdown answers "it failed on its own." A burnt-out chiller compressor with no fire and no external cause is not a PAR claim, and most SMEs only discover this at the moment the loss adjuster declines it. Businesses that run on machinery, F&B kitchens, manufacturers, cold-chain operators, clinics with diagnostic equipment, usually need both, because each closes the gap the other leaves open.
The Sourced Detail
The confusion here is reasonable. A PAR policy is marketed as "all risks," and a chiller dying overnight certainly feels like a risk. But the policy name describes the trigger, not the breadth of cover. PAR responds to accidental physical loss or damage from an external cause, subject to a long exclusion list, and one of the standard exclusions on that list is mechanical and electrical breakdown. Equipment Breakdown is the policy written specifically to cover what that exclusion carves out. Understanding the boundary between them is what stops a five-figure claim from being declined.
What "external" means, and why it decides the claim
The dividing line is cause, not consequence. PAR is built to respond when something happens to the machine from outside it. A forklift reverses into a packaging line. A sprinkler discharges and soaks a control panel. A roof leak drips into a server rack. A fire in the unit next door scorches your equipment. In each of these the damage originates outside the machine and acts on it. That is the territory PAR is designed for, and it is wide territory.
What PAR is not built for is the machine destroying itself. When a motor winding overheats and burns out, when a bearing fails and a shaft seizes, when an electrical surge fries a circuit board inside the unit, when a pressure vessel ruptures from internal stress, the cause is internal. Nothing hit it. Nothing flooded it. It failed. This is mechanical and electrical breakdown, and it is one of the most commonly listed exclusions in a PAR wording. Our Property All Risks Exclusions Deep-Dive walks through that exclusion list in full, including where the breakdown exclusion sits and how it interacts with the others.
The practical test a loss adjuster applies is simple. Was there an external, fortuitous event that caused the damage? If yes, PAR is in play. If the machine simply stopped working from within, PAR steps back and the question becomes whether you carried Equipment Breakdown.
What Equipment Breakdown actually covers
Equipment Breakdown is the mirror image. It responds to sudden and accidental physical breakdown of machinery and electrical plant from an internal cause: the very failures PAR excludes. Typical insured events include electrical short circuit and arcing, motor and pump burnout, failure of pressure and vacuum equipment, mechanical failure such as seizure or fracture of moving parts, and breakdown of refrigeration and air-conditioning plant.
The cover is usually wider than the direct repair bill. A good Equipment Breakdown wording also picks up the consequential damage that flows from the breakdown. When a chiller compressor fails, the repair is one cost; the spoiled stock sitting in the warehouse as it warms up is often the larger one. Equipment Breakdown policies commonly offer a deterioration of stock extension for exactly this, which a PAR policy will not provide because the underlying breakdown is not a PAR event in the first place.
For the procedural side, how a breakdown claim is documented, what the insurer's engineer looks for, and how the cause is established, see our Equipment Breakdown Claim Process. When a breakdown actually halts production and you need to act in the moment, the crisis playbook for equipment breakdown halting production covers the first steps.
The two policies side by side
| Scenario | PAR (sudden external) | Equipment Breakdown (internal failure) |
|---|---|---|
| Fire damages a machine | Covered | Not the trigger |
| Forklift impacts a production line | Covered | Not the trigger |
| Burst pipe floods a control panel | Covered | Not the trigger |
| Storm or falling object damage | Covered | Not the trigger |
| Motor burns out from within | Excluded | Covered |
| Electrical short circuit inside the unit | Excluded | Covered |
| Compressor seizes, no external cause | Excluded | Covered |
| Pressure vessel ruptures from internal stress | Excluded | Covered |
| Stock spoils because the chiller broke down | Not covered | Covered (deterioration extension) |
The pattern is consistent. The two policies do not overlap and they do not compete. They tile the surface of the same machine, and where one ends the other begins. Carrying only one leaves the other half of the machine uninsured.
Why the gap is so easy to miss
Three things make this gap quiet until it bites. First, the marketing language. "All risks" reads as comprehensive, and an SME owner reasonably assumes the most expensive machine on the floor is fully covered under it. Second, the failures that PAR excludes are precisely the failures machinery is most prone to in normal operation. Compressors, motors, and electrical plant do not usually die because a forklift hit them; they die from wear, surge, and internal stress, year after year. The exclusion lands on the most likely loss, not the rarest one. Third, the loss is invisible until it happens. A working chiller looks fully insured right up to the morning it does not start.
This is also why the PAR versus Fire decision, covered in Fire Insurance vs Property All Risks, does not solve the problem on its own. Upgrading from a named-perils Fire policy to a broader PAR policy widens the external-cause trigger, but it does nothing for internal breakdown, because PAR excludes breakdown regardless. A business can do everything right on the property side and still have no cover for the way its machinery most commonly fails.
Which businesses typically need both
The need for Equipment Breakdown scales with how much the business depends on running machinery and how costly its downtime is.
- F&B operators run on refrigeration, chillers, ovens, and exhaust plant. A failed walk-in chiller is both a repair bill and a stock-spoilage event, and a kitchen that cannot refrigerate cannot trade.
- Manufacturers depend on motors, compressors, presses, and electrical plant where a single seized unit can stop a line. The direct breakdown is rarely the largest cost; the stopped production is.
- Cold-chain and temperature-controlled operators carry the sharpest version of this risk, because their entire stored value sits behind refrigeration plant. Our note on cold chain and temperature-controlled logistics insurance goes deeper into how these operators structure cover around that single point of failure.
- Clinics and medical practices run diagnostic and imaging equipment whose internal failure is both expensive to repair and disruptive to patient care, and which a PAR policy will not touch when it fails from within.
For a pure office with no operational machinery beyond standard IT and air-conditioning, the case is weaker, though even there a failed central cooling unit in a server room can do real damage. The question is not industry label but exposure: how much of the business stops, or spoils, when a machine fails on its own.
Common Mistakes
-
Reading "all risks" as "all causes." PAR covers accidental damage from an external cause, subject to exclusions. Internal mechanical and electrical breakdown is one of those exclusions. The policy name describes the trigger, not the limit.
-
Assuming the most expensive machine is automatically the best covered. The chiller, the compressor, the production motor are often the items most exposed to the breakdown gap, because internal failure is how they actually die.
-
Carrying PAR and skipping Equipment Breakdown to save premium. The saving is real until the first burnout, at which point the declined repair plus spoiled stock dwarfs years of the foregone premium.
-
Forgetting the consequential loss. The repair on a failed chiller might be modest. The stock that spoils behind it might not be. Without an Equipment Breakdown deterioration-of-stock extension, that spoilage has nowhere to land.
-
Treating the Fire-to-PAR upgrade as the fix. Moving to a broader external-cause trigger does not add breakdown cover. PAR excludes breakdown whether it is the basic or the broadest property wording.
-
Not checking which named machines are scheduled. Equipment Breakdown cover often turns on the items listed or the way plant is described. A machine the policy does not contemplate can fall outside the cover even when breakdown is otherwise insured.
What This Means for Your Business
Start by separating the two questions, because they have different answers. The first is "what protects my machinery against fire, impact, and water?" That is your PAR cover, and most SMEs with any property programme already carry it. The second is "what protects my machinery against failing from the inside?" That is Equipment Breakdown, and it is the one businesses most often do not have.
Walk the floor and list the machines the business cannot trade without. For each, ask how it is most likely to fail. If the honest answer is wear, surge, burnout, or seizure, which it usually is for refrigeration, motors, compressors, and electrical plant, then the PAR policy is not the one that responds. That machine needs Equipment Breakdown, and if its failure spoils stock or stops a line, it needs the consequential-loss extensions too.
Then map the two policies against each other to make sure there is no machine sitting in the gap between them, covered for fire it will probably never see and uncovered for the burnout it probably will. The goal is not to buy the most cover; it is to make sure the most likely loss is the one that is actually insured.
Covarage helps with the part that quietly goes wrong here: keeping the PAR and Equipment Breakdown policies organised in one place so the gap between them is visible, flagging renewals before either lapses, and routing you to a licensed adviser when you need to compare wordings or schedule a new machine.
Questions to Ask Your Adviser
- Does my property programme include Equipment Breakdown cover, or only PAR with the standard mechanical and electrical breakdown exclusion?
- For my critical machines, which policy responds to an internal failure, and which to external damage?
- Does my Equipment Breakdown cover include consequential loss, such as deterioration of stock when refrigeration fails?
- Are all my key machines actually scheduled or contemplated by the Equipment Breakdown wording?
- If a compressor or motor burns out tomorrow with no external cause, which policy pays, and what is the excess?
Related Information
- Fire Insurance vs Property All Risks (PAR): What's the Difference?
- Property All Risks Exclusions Deep-Dive: The Provisions That Define Where Cover Ends
- Equipment Breakdown Claim Process: Specialty Cover for Mechanical and Electrical Failures
- Critical Equipment Just Broke and Halted Our Production: What Do I Do Now?
- Cold Chain Logistics and Temperature-Controlled Storage Insurance: Singapore Operator Framework
Published 31 May 2026. Source verified 31 May 2026. COVA is an introducer under MAS Notice FAA-N02. We do not recommend insurance products. We provide factual information sourced from primary regulators and route you to a licensed IFA who can match a policy to your specific situation.
