Understanding California’s FAIR plan

For California residents, a number of factors may influence their ability to purchase  homeowners insurance. If the house is old, or located near an earthquake fault line, for example, it may be denied coverage due to an elevated risk of damage. Additionally, in 2023, several major companies have announced paused, stopped, or canceled policies in the state due to increasing wildfire risks. For homeowners who struggle to find new coverage, the best option may be to purchase a FAIR plan.

California’s FAIR Plan explained

The California FAIR Plan Association provides basic fire insurance to high-risk homeowners that cannot get insurance through a preferred property insurer. The FAIR Plan is offered through a shared market where licensed insurance companies agree to share the risk of California homeowners who do not qualify for voluntary coverage.

Though more limited than a standard homeowners insurance policy, a FAIR plan can protect homeowners from shouldering the full cost of a loss out-of-pocket. Though a FAIR plan typically covers fewer types of losses and offers fewer policy options, additional coverage can be added at an additional cost. For homeowners who struggle to locate other insurance coverage, a FAIR plan can be a strong choice.

California’s FAIR Plan is a last resort option. The FAIR Plan Association recommends that California homeowners apply for private homeowners insurance several times before applying for FAIR Plan coverage. Additionally, homeowners must meet certain requirements to qualify for the FAIR Plan.

What California’s FAIR Plan covers

A basic insurance policy from the California FAIR Plan only includes dwelling coverage for named perils, such as fire, lightning, internal explosion and smoke. However, homeowners have the option to purchase add-on coverages for more comprehensive protection. Here are the standard coverage options available for a dwelling policy through the California FAIR Plan:

• Dwelling coverage: Dwelling coverage insurance protects the physical structure of your home from covered perils. The FAIR Plan does not cover the same perils as a standard home insurance policy, but instead would cover perils caused by lightning, fire, internal explosion and smoke. FAIR Plans cover the dwelling at actual cash value (ACV) versus replacement cost value.
• Other structures coverage: Other structures coverage protects detached structures like a garage, porch, shed or fence.
• Personal property coverage: Personal property coverage pays to replace personal belongings that are damaged in a covered peril, such as electronics, furniture and clothing. FAIR Plans cover personal property at ACV.
• Fair rental value coverage: This endorsement is available for rental properties and covers lost income if the unit is unable to be lived in due to damage sustained from a covered peril.
• Dwelling replacement cost coverage: This endorsement covers the dwelling at replacement cost value (RCV), which does not include depreciation.
• Personal property replacement cost coverage: This endorsement covers personal belongings at RCV, which replaces items at their current replacement value with no depreciation factored in.
• Ordinance/law coverage: After a covered loss, this endorsement pays to make structural upgrades to a home so it meets residential building codes.
• Debris removal coverage: This endorsement pays to clean up debris on the property after a storm.
• Inflation guard protection: This endorsement will automatically raise coverage limits based on inflation, without paying out-of-pocket for more coverage.
• Plants, shrubs and trees coverage: This endorsement includes coverage for landscaping losses.
• Outdoor radio and TV equipment, awnings and signs coverage: This endorsement covers outdoor equipment, signs and awnings from covered perils, with the exception of wind or hail storms.
• Improvements, alterations and additions coverage: This coverage is available for condo owners, and covers damage to improvements or alterations in your unit.
• Earthquake insurance: FAIR Plan customers can purchase a separate earthquake insurance policy through the California Earthquake Authority (CEA).

With major insurance companies pulling out of the California homeowners’ market, the number of California FAIR plan policies issued has been on the rise. In addition to increased demand for this coverage, coverage limits themselves are increasing. And with more property owners relying on FAIR plan insurance to cover their high-risk properties, costs are also rising.

Who is eligible for California’s FAIR Plan

California’s FAIR Plan offers property insurance for owner- and tenant-occupied buildings, seasonal homes, condos and rental properties (personal property coverage only). To get coverage, property owners must meet certain criteria. FAIR Plan applicants must own a single-family home, townhome, condo or have a rental unit in California, and the home must meet certain building requirements.

Some homeowners do not meet FAIR Plan criteria, even if they are considered high-risk. The FAIR Plan does not cover vacant homes that are unoccupied for 50% of the year, homes with existing damages that have not been repaired and homes that are tied to illegal activity based on state and federal laws.

How much California’s FAIR Plan costs

California FAIR Plan premium varies based on a number of rating factors. This includes the location, age and condition of the home, proximity to a fire station, the homeowner’s claims history, the types and amount of coverage and the deductibles chosen.

However, FAIR Plans are typically more expensive than standard home insurance policies. In California, the average homeowner pays $1,428 for $250,000 in dwelling coverage. With a FAIR Plan, homeowners should conservatively expect their homeowners insurance rate to be higher than the statewide average. The cost to insure a home can be even more expensive if purchasing policies to complement the FAIR plan, such as a difference in conditions, flood or earthquake policy.

How to get California’s FAIR Plan

The process of purchasing a California FAIR Plan is pretty simple. However, the process is slightly different than getting a traditional home insurance policy. Here’s a brief overview of how to get a California FAIR Plan:

1. Find a provider: California FAIR Plan insurance can be purchased through a licensed insurance broker in the state. Homeowners can use the online broker search tool on the FAIR Plan website to find local agents within or near their ZIP code. Brokers do not collect a fee when selling FAIR Plan insurance policies like they do with standard home policies.
2. See if you are eligible: Not every homeowner will be able to qualify for a California FAIR Plan. Your broker will run an extensive search to see if you can get preferred homeowners insurance coverage through the traditional marketplace before you will be allowed to move forward with the FAIR Plan application.
3. Complete the application: If you work with a broker, they can help you fill out the application, choose an appropriate amount of coverage and endorsements and calculate the fair market value of your home. Once the application is completed, you will get an instant rate quote. Keep in mind that if you apply for a FAIR Plan without a broker, you cannot get an immediate price estimate.
4. Scheduled a home inspection: Depending on your home’s location, a representative from the FAIR Plan might ask to schedule a home inspection. This will help them better understand your home’s insurability. For example, if your house is located in a heavily wooded area with a high risk of wildfires, it could impact the amount of coverage you are eligible for.
5. Pay the premium: Once your application is approved, the last step is to pay the first month’s premium. Your coverage will only take effect once you make the first payment.

Frequently asked questions

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    What is the best home insurance company in California?

    The best homeowners insurance company in California is different for everyone. It depends on what type of insurance the homeowner wants, how much coverage they need and what their budget is. Bankrate research is updated regularly and provides information about the leading insurers in your area and which company may provide the best coverage for your home.
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    Do I need earthquake insurance in California?

    While homeowners insurance may be a requirement by mortgage companies, earthquake insurance is not. However, because a standard homeowners insurance excludes earthquake coverage, many homeowners opt to purchase it anyway to protect their home and personal property, especially if they live near an active fault line or are concerned about earthquakes. Without earthquake insurance, homeowners are responsible for covering the cost of all repairs out-of-pocket. Homeowners who have a California FAIR Plan dwelling fire policy in force are able to purchase additional coverage for earthquakes, which is offered through the California Earthquake Authority.
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    Does the California FAIR Plan cover wildfires?

    The California FAIR Plan covers fire damage and smoke damage, from wildfires and other structure fires. Fire coverage applies to the structure of the home and the personal belongings inside the home.
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    Does the California FAIR Plan offer discounts?

    Most traditional home insurance companies offer multiple discounts to help customers save money. However, the California FAIR Plan only offers one discount available for properties in a firewise community. You may be able to get a lower premium if your home is retrofitted with fire-proof materials that can prevent wildfire damage.
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    Are insurers leaving California due to wildfires?

    In 2023, several major insurers have announced a pause or stop on issuing new homeowners policies in California, specifically due to the wildfire risk in the state. Other companies have canceled existing policies on particularly high-risk homes, leaving homeowners to find alternative insurance options. While many insurers are changing the availability of their homeowners coverage, auto insurance availability does not appear to be affected at this time.