California, like most other states, has a FAIR plan. FAIR stands for Fair Access to Insurance Requirements. Each state’s plan may differ, but the overall premise of the plan is to give homeowners who can’t find private home insurance for the home an option. These plans are meant to be a last resort for homeowners in high-risk areas. California’s FAIR plan can be a better option than nothing for homeowners in this state.
Key facts
- The California FAIR Plan is a last-resort option for residents of the state. The homeowner must apply for home insurance through private insurers multiple times before applying for FAIR
- The California FAIR Plan provides very basic coverage to the homeowner with the option for multiple add-ons at a higher cost to provide further protection
- The process of obtaining a California FAIR Plan policy is similar to obtaining standard home insurance with the minor difference of having to apply to other providers first
What is the California FAIR plan?
California has a FAIR plan just like most other states around the country. FAIR plans provide a last resort home insurance option to homeowners who are not able to obtain home insurance through a private insurer, usually due to the home being extremely old and/or at a high risk of sustaining damage. In California, there are a number of factors that could put a home at higher risk like the home being located on or near a fault line or being located along the coast in an unstable area. FAIR plans are programs run at the state level, which involve the state government basically requiring insurance companies to provide coverage to homeowners through this program when the homeowner can not obtain coverage through private insurers directly.
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The California FAIR Plan is offered to residents through a shared market. The shared market is essentially a group of licensed insurance companies who all agree and ultimately share the risk of the homeowner’s property. Spreading the risk among multiple insurers provides less overall exposure to each insurance company, which makes them more willing to take on the risk. Californians must apply for home insurance several times before being able to apply for coverage through the FAIR plan.
FAIR plans normally provide far less protection to a homeowner compared to a standard home insurance policy and California’s FAIR Plan is no different. Homeowners do have the option to add on more coverage at a higher cost if they so choose. Even with a FAIR plan providing less coverage, it still provides some coverage to a homeowner which is better than nothing. Most mortgage lenders require homeowners to purchase and maintain an active home insurance policy in order to receive the mortgage loan. If a California homeowner cannot get insurance through a private insurer the FAIR plan is what they would have to get to be able to receive their home loan.
What does the California FAIR plan cover?
At its base level, the California FAIR Plan provides the homeowner with dwelling coverage on a named perils basis. The list of named perils that would be covered is quite limited. Sometimes limited to just fire, lightning, smoke, or an internal explosion. Californians do have the option to add other additional protection such as other structures coverage, personal property coverage, and fair rental value coverage among others.
The coverage provided under the California FAIR Plan is on an actual cash value basis, meaning that depreciation is factored into the coverage limit over time; therefore, coverage is essentially reduced as time moves on. Sometimes, homeowners will have the ability to pay a little bit more to get replacement cost protection which would eliminate depreciation from being factored into the coverage limit.
California’s FAIR Plan will not cover as much as a standard home insurance policy, but a homeowner can purchase multiple coverage add-ons to get the coverage somewhat close to the coverage of standard policy, albeit at a much higher premium cost.
Frequently asked questions
Is anyone who cannot obtain standard home insurance eligible for the California FAIR plan?
The short answer is no. First, a homeowner must own either a single-family home, townhome, condo, or rental property in the state of California to be eligible. There are certain building requirements that must be met as well which is beyond the scope of this article. Of course, the homeowner must have applied for home insurance with several insurance providers and been denied, before being eligible for the FAIR plan. One other caveat is that the home must be occupied for more than 50% of the year. The California FAIR plan will not insure homes that are left vacant for half a year or more. There are other factors that may make the home ineligible such as the home already having damage that has not been repaired or has been tied to illegal activity.
What is the cost of coverage under the California FAIR plan?
There are numerous factors that go into determining the cost of coverage under the FAIR plan for any individual home, but the average cost across the state is just under $1,100 per year for $250,000 worth of coverage. If the homeowner is looking for say $500,000 of coverage it is roughly double the cost plus additional coverages a homeowner may wish to have. As you can see it can get fairly expensive quickly. If the homeowner wants to get earthquake or flooding coverage they would have to obtain separate policies for those, adding more premium cost.
Process for obtaining coverage through the California FAIR plan
The steps to obtaining coverage through the California FAIR Plan are similar to obtaining coverage through the traditional route, with an added step.
- Find an insurer: Californians can find coverage options through the FAIR plan website or through a licensed broker
- Determine eligibility: an extensive search will be completed to see if any sort of private insurer will insure the homeowner before the homeowner will be eligible to move forward with applying for coverage through the FAIR plan.
- Complete an application: fill-in all of the necessary information and complete all the requirements to get a premium rate quote
- Have a home inspection completed: you may be required to have a home inspection completed in order for an insurer to get an accurate idea of the risk of the home so that the insurer can provide you with an appropriate premium rate
- Pay your premium: once the above steps have been completed and the application has been approved, all you have to do is pay your first month’s premium to initiate coverage
Completing the above steps with the help of an insurance broker can make the process of obtaining coverage through the California FAIR plan much quicker and easier as sometimes the insurance jargon can be quite confusing and cumbersome.
Summary
The California FAIR Plan provides last-resort coverage to residents of California. The coverage is far less than a standard home insurance policy, but it provides some protection rather than nothing, which not only is helpful but may be a requirement of a mortgage lender. If a California homeowner cannot obtain coverage through the traditional route they should look to the FAIR plan for coverage.
