The Low-down on your Insurance Options for Second Hand Equipment
Will today’s bargain be tomorrow’s burden? With used business, farming, and construction equipment in high demand, it’s worth assessing the benefits and risks of buying secondhand.
Factors causing the rush are the pandemic disrupting international supply chains and a growing appetite for buying online. Overall, the secondhand economy - not just for business equipment - is expected to hit $46 billion in Australia this year, according to the sales site, Gumtree.
A buyer’s market?
Meanwhile, the Global Market Insights Report says the Asia-Pacific region - including Australia - will see a high-growth rate in used construction equipment until 2026. Globally, it will reach $AU185-billion-plus annually by then. That’s due to the increasing number of significant infrastructure projects.
The most popular items among buyers include earthmoving, piling, compacting, and cranes. But, if you’re opting for new machinery and tractors from overseas, expect delays of up to four months, says a major digital marketplace for hiring, buying, and selling used farm machinery, Machines4U.
No wonder the spotlight is on used equipment that’s already on our shores.
However, low-quality construction equipment at bargain prices is flooding the market. These tend to breakdown within a few months, which is why some players offer certified used equipment, says the Global Market Insights Report.
So, what are the pros and cons of buying pre-loved equipment for your business?
Benefits of used equipment
You could be looking for alternatives to new equipment because there’s a lack of tax exemptions and government grants on offer to buy new gear.
Buying secondhand equipment obviously delivers savings, and getting the gear earlier means your business could exploit a new market niche or expand an existing customer base sooner.
Your equipment search could span online and retail, buying from the owner or through brokers or auctions. Equipment could be sold as-is, rebuilt, or reconditioned. It may even have a limited warrant, and be certified.
What could go wrong?
Doing a case-by-case cost-benefit analysis will reveal the possible risks of your would-be investment. Make sure you factor in:
- Goods and Services Tax - it will apply to your purchase
- The equipment’s log book’s details about repairs, run time, frequency of servicing, etc.
- Depreciation (which might not be tax-deductible until you sell the item)
- Limited warranty period
- Anticipated maintenance so productivity may be lower
- Compatibility with your existing technology
- Whether you have access to expertise to test and check the equipment before your business buys it
- Availability of spare parts.
As well, if you’re buying secondhand electrical equipment, the vendor has obligations, and consumer guarantees. Check with your state or territory authority as well as Product Safety Australia for mandatory standards.
Keep the risks in check
There’s something else you can do to minimise your risks - insurance cover. We can guide you pre-purchase or after you’ve bought the item. A tools and equipment policy covers you for accidental damage to the equipment and if it breaks down. However most insurance policies have conditions requiring property to be well maintained and excluding damage due to 'wear & tear'. Here are your choices to find a best-fit policy:
- General property, which covers repair or replacement costs of portable tools and equipment damaged anywhere globally. You’ll need to specifically list items such as electronic equipment - computers and mobile phones, etc.
- Unspecified items cover is for trade tools and general business property
- Stock cover, which protects unspecified stock to a dollar value you specify
- Specified items cover can cover items you list, such as computers, photographic equipment, and mobile phones, etc, which are worth more than $2,500 each
- Electronic equipment insurance covers the computers (weighing under 5kg) and electronic equipment at your business site, but not for accidental damage or loss (that’s what material damage or general property insurance covers)
- Machinery breakdown cover will protect you when your gear needs repair or replacement, and you can opt for extra cover should that breakdown mean your stock deteriorates and you suffer a business loss. You’ll also be covered for debris removal (limited) and hiring temporary machines and if they also need repairs. This policy won’t cover computers, communication equipment, and audio-visual items, but you can add them as extras.
There’s a lot of scope to keep your equipment humming. Think about policy inclusions such as natural hazards, loss, theft, breakdowns, accidents, explosion, fraud, and vandalism. We can help you protect your business equipment with a policy package customised for your business needs.
This article originally appeared on Tudor Insurance Blog and has been published here with permission.
Advisr does not provide advice and does not hold a financial service license (AFSL). All information above has been provided by Tudor Insurance Australia.