Restoration Premium
An additional premium charged to restore policy limits back to their original amount after a claim has reduced them. This ensures continued full coverage protection after a loss has been paid.
Example
“After the $200,000 liability claim was paid, the company paid a restoration premium to bring their $1 million policy limit back to its full amount.”
Memory Tip
Think 'RESTORE the STORE' - you're restoring your coverage store back to full capacity after a claim depleted it.
Why It Matters
Restoration premiums ensure you maintain full insurance protection throughout the policy period even after claims. Without paying restoration premiums, your remaining coverage could be inadequate for future losses, leaving you financially exposed.
Common Misconception
Many policyholders assume their coverage limits automatically restore to full amounts after claims are paid. In reality, many policies require payment of restoration premiums to rebuild limits, or the coverage remains reduced for the rest of the policy period.
In Practice
A contractor has a $2 million general liability policy with a $50,000 restoration premium provision. After a $800,000 lawsuit settlement, only $1.2 million in coverage remains. To restore the full $2 million limit, the contractor must pay the $50,000 restoration premium. Without paying this fee, any subsequent claims would be limited to the remaining $1.2 million, potentially leaving the contractor underinsured for major future incidents.
Etymology
From Latin 'restaurare' meaning 'to repair' or 'rebuild,' referring to rebuilding the policy's coverage limits to their original state.
Common Misspellings
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See Also
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