Restoration Premium
An additional premium paid to restore policy limits after a claim has been paid out. This ensures the policyholder maintains their original coverage amount for the remainder of the policy period.
Example
“After the fire claim depleted half of Sarah's property coverage limits, she paid a restoration premium to bring her policy back to its original $500,000 coverage level.”
Memory Tip
Think 'restore the store' - you're paying to restore your coverage back to the original amount after a claim has used it up.
Why It Matters
Without restoration premiums, policyholders could be left with reduced coverage after a claim, leaving them vulnerable to future losses. This option ensures continuous protection at the level originally purchased, which is especially important for businesses or properties at high risk.
Common Misconception
Many people assume their coverage limits automatically reset after paying a claim, but in many policies, limits are depleted by claims payments. The restoration premium is an optional feature that must be specifically purchased and paid for to restore those limits.
In Practice
A restaurant owner has a $1 million liability policy and faces a $400,000 lawsuit that gets paid out. Their remaining coverage is now only $600,000. To restore the full $1 million limit, they pay a restoration premium of $1,200 (calculated as a percentage of the original premium). This brings their available coverage back to the full $1 million for the rest of the policy year, protecting them from future claims.
Etymology
Derived from 'restore' meaning to bring back to original condition, combined with 'premium' from Latin 'praemium' meaning reward or prize.
Common Misspellings
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Related Terms
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