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If you’re getting ready to purchase a new home, exploring your options for homeowners insurance is important. Even though home insurance is not a legal requirement, it goes a long way toward protecting your finances against potential risks to your property, like damage, theft and liability claims. However, getting approved for traditional home insurance can be challenging if you have a history of claims or live in a high-risk hurricane area, for example. If you get denied for a standard policy, applying for a FAIR Plan might be the best solution.
FAIR Plan insurance explained
A FAIR Plan, which stands for Fair Access to Insurance Requirements, is a program that allows high-risk individuals to purchase home insurance. People who get insurance through a FAIR Plan are typically not eligible for coverage through the voluntary market because their home is located in a high-risk area or they have other red-flags that concern insurers.
FAIR Plans are state-run programs that are subsidized by taxpayers and private insurance companies. A FAIR Plan is slightly different from typical home insurance because it is a shared market plan. Rather than getting coverage from a single insurance company, several insurance companies cover your property in a FAIR Plan, limiting the amount of risk that one company assumes. If you have to file a claim, every participating company pays for a portion of your loss.
When it comes to the actual coverage, homeowners insurance through a FAIR Plan is pretty limited. Most plans only include dwelling and personal property coverage on a named perils basis. You most likely cannot get liability, medical payments or loss of use coverage through a FAIR Plan.
It is important to note that FAIR insurance is only used as a last resort option. You cannot apply for home insurance through your state’s FAIR Plan as your first option because you will have to prove that you have been denied home insurance from several private companies.
High-risk homes and FAIR Plans
FAIR Plans specifically cover high-risk homes and high-risk homeowners. However, the criteria for what is considered a high-risk home is very specific. Here are some of the characteristics of a high-risk home that would qualify you for FAIR Plan insurance:
- You live in an area with a high risk of severe weather, like tornadoes, hurricanes or earthquakes.
- You live in a neighborhood with a high rate of crime, vandalism or theft. This is typically more common in urban areas.
- Your home is very old and has outdated systems that make your home risky to insure, like old plumbing or electrical wiring.
FAIR Plans also serve homeowners with a lengthy claims history. If you’ve filed more than a few insurance claims, especially major ones, it’s a red flag for insurance companies. When you apply for a new policy, the insurance company can review your CLUE report, which includes a record of every insurance claim you’ve ever filed. A spotty claims record can make it difficult to get preferred coverage, so you might have to resort to a FAIR Plan if you fall into this category.
Although you can find private insurance companies willing to insure high-risk homes, it’s becoming more difficult in some states. For example, a number of home insurance companies in Florida are shutting down and canceling policies due to the uptick in natural disasters, expensive claim payouts and fraudulent claims. Therefore, more Florida homeowners may need to consider a FAIR plan due to the difficulty in finding standard coverage.
How to get FAIR Plan homeowners insurance
The process of getting FAIR insurance is different in every state, but is usually straightforward.
- Call your state’s department of insurance to inquire about a FAIR Plan. Explain your situation to find out if you qualify for coverage.
- If you do qualify, you will get assigned to an agent with whom you have to file an application, along with additional details about yourself and your property. Along with your application, you might also have to provide proof of denied coverage from one or more private providers.
- Once you submit the application, you will wait for approval. After you are approved, you will work with the agent to set your coverage limits, choose endorsements (if they are offered) and get a price quote.
Keep in mind that some states require FAIR homeowners insurance customers to apply for private home insurance once per year. If approved, you will no longer be eligible for the FAIR Plan insurance.
States that offer FAIR Plan insurance
Not every state offers a FAIR Plan, but many do, especially states with a high rate of severe weather. Currently, 32 states and Washington D.C. offer a FAIR Plan to high-risk homeowners.
- New Jersey
- New Mexico
- New York
- Rhode Island
- South Carolina
- Washington D.C.
- West Virginia
Frequently asked questions
FAIR Plans are more expensive than standard home insurance policies. If you’re eligible for a FAIR Plan, it means that you or your home are considered high-risk to insure. To compensate, the insurance company charges you more money for insurance to cover the potential risk.
The actual cost of FAIR Plan insurance depends on a number of factors, most of which are also factors when you buy standard home insurance. Some examples include your state, your zip code, the age of the home, your credit score and your claims history.
It depends. Many states require people with FAIR Plan insurance to apply for private coverage at least once per year. If you’ve been on the plan for a while, the insurance company might work with you to make renovations or updates that would allow you to qualify for private insurance.
If you have FAIR homeowners insurance because your home is located in a high-risk area, like on the beach, it might be possible to stay on a FAIR Plan for as long as you own the home.
One of the downsides of FAIR Plan insurance is that the coverage is limited. Most FAIR Plans only include dwelling coverage, which protects the structure of your home, as well as personal property coverage. That means you might not be able to get liability, medical payments or loss of use insurance.
Additionally, your home and belongings are usually covered by actual cash value with FAIR Plan insurance, which means your payout will include depreciation if you file a claim. Some insurance companies sell endorsements, like the option to upgrade to replacement cost coverage, but it varies.
Most traditional home insurance companies offer discounts to policyholders looking to save money. But unfortunately, you typically can’t qualify for discounts with a FAIR Plan. However, there are other ways to potentially save money on your premium. For example, if you improve your credit score, make safety-related home improvements or raise your deductibles, you might be eligible for a lower rate.