Understanding California’s FAIR plan

When you apply for a homeowners insurance policy in California, the insurance company looks at a variety of factors to determine if you are eligible for coverage. However, if your home is much older or is located near an earthquake fault line, for example, you might get denied coverage due to the home’s increased risk of damage. In this case, your best option may be to purchase a FAIR Plan.

Compared to standard homeowners policies, the FAIR Plan is much more limited, both in terms of types of covered losses and policy options. Additional coverage can be added, but will come at an extra cost. Still, if you have a mortgage on your property and are required to have an active policy, or if you want to avoid shouldering the full cost of a covered loss out-of-pocket, the FAIR Plan might be worth exploring.

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.

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 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).

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 $1,084 per year 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 directly through the FAIR Plan’s website or through a licensed insurance broker in the state. Homeowners can use the online broker search tool 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. According to Bankrate’s research, some of the best home insurers in California include Allstate, Auto-Owners, Nationwide, State Farm and USAA.
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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.