Understanding California’s FAIR Plan

When considering homeowners insurance in California, various factors can affect one’s ability to secure coverage. Homes aged or situated near earthquake fault lines, for instance, may face denials due to heightened risk. Furthermore, in 2023, several major insurers have suspended, terminated, or canceled policies in the state due to escalating wildfire hazards. For homeowners encountering difficulty in obtaining new coverage, the California FAIR plan can emerge as the most viable solution.

Demystifying California’s FAIR Plan

The California FAIR Plan Association extends basic fire insurance to homeowners facing high-risk scenarios, unable to obtain coverage through a preferred property insurer. This plan operates through a shared market wherein licensed insurance companies agree to collectively underwrite the risks associated with California homeowners who don’t qualify for voluntary coverage.

Although more constrained than a typical homeowners insurance policy, a FAIR plan offers protection against shouldering the entire out-of-pocket loss costs. While a FAIR plan typically covers a narrower range of losses and provides fewer policy options, supplementary coverage can be added at an extra expense. For homeowners struggling to secure alternative insurance, the FAIR plan represents a robust choice.

The California FAIR Plan serves as a last-resort alternative, and homeowners are advised to apply for private homeowners insurance multiple times before resorting to FAIR Plan coverage. Furthermore, specific criteria must be met for homeowners to qualify for the FAIR Plan.

What California’s FAIR Plan Encompasses

A fundamental insurance policy from the California FAIR Plan exclusively includes dwelling coverage for specified perils such as fire, lightning, internal explosion, and smoke. However, homeowners have the option to acquire add-on coverages for more comprehensive protection. The following are the standard coverage options available for a dwelling policy through the California FAIR Plan:

1. Dwelling coverage: Safeguarding the physical structure of a home against covered perils, the FAIR Plan doesn’t cover the same perils as a standard home insurance policy but instead covers perils resulting from lightning, fire, internal explosion, and smoke. FAIR Plans cover the dwelling at its actual cash value (ACV) rather than replacement cost value.

2. Other structures coverage: Protecting detached structures such as garages, porches, sheds, or fences.

3. Personal property coverage: Replacing personal belongings damaged in a covered peril, encompassing items like electronics, furniture, and clothing. FAIR Plans cover personal property at ACV.

4. Fair rental value coverage: Available for rental properties, this coverage compensates for lost income if the unit becomes uninhabitable due to damage from a covered peril.

5. Dwelling replacement cost coverage: Covering the dwelling at replacement cost value (RCV), excluding depreciation.

6. Personal property replacement cost coverage: Covering personal belongings at RCV, replacing items at their current replacement value without factoring in depreciation.

7. Ordinance/law coverage: Following a covered loss, this coverage funds structural upgrades to ensure compliance with residential building codes.

8. Debris removal coverage: Covers the cost of cleaning up debris on the property after a storm.

9. Inflation guard protection: Automatically raises coverage limits based on inflation, eliminating the need for additional out-of-pocket expenses.

10. Plants, shrubs, and trees coverage: Includes coverage for losses related to landscaping.

11. Outdoor radio and TV equipment, awnings, and signs coverage: Protects outdoor equipment, signs, and awnings from covered perils, except wind or hail storms.

12. Improvements, alterations, and additions coverage: Available for condo owners, this covers damage to unit improvements or alterations.

13. Earthquake insurance: FAIR Plan customers can purchase a separate earthquake insurance policy through the California Earthquake Authority (CEA).

As major insurance companies withdraw from the California homeowners’ market, the issuance of California FAIR plan policies has been on the rise. Additionally, both the demand for this coverage and the coverage limits themselves have been increasing, leading to rising costs as more property owners turn to the FAIR plan to cover their high-risk properties.

Eligibility for California’s FAIR Plan

The California FAIR Plan offers property insurance for owner- and tenant-occupied buildings, seasonal homes, condos, and rental properties (personal property coverage only). To secure coverage, property owners must meet specific criteria. FAIR Plan applicants must own a single-family home, townhome, condo, or possess a rental unit in California that complies with particular building requirements.

Certain homeowners do not meet the FAIR Plan criteria, even if they are considered high-risk. The FAIR Plan does not extend coverage to vacant homes unoccupied for more than 50% of the year, homes with existing unrepaired damages, or homes associated with illegal activities based on state and federal laws.

Cost of California’s FAIR Plan

The premium for a California FAIR Plan varies depending on numerous rating factors, including the property’s location, age, condition, proximity to a fire station, the homeowner’s claims history, the types and amount of coverage selected, and the chosen deductibles.

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 anticipate higher insurance rates compared to the statewide average. The cost of insuring a home can become even more expensive when purchasing supplementary policies to complement the FAIR plan, such as difference in conditions, flood, or earthquake coverage.

Obtaining California’s FAIR Plan

The process of obtaining a California FAIR Plan is relatively straightforward, though it differs slightly from acquiring a traditional home insurance policy. Here’s a brief overview of how to secure a California FAIR Plan:

1. Find a provider: California FAIR Plan insurance can be acquired through a licensed insurance broker in the state. Homeowners can use the FAIR Plan website’s online broker search tool to locate local agents within or near their ZIP code. Brokers do not charge a fee for selling FAIR Plan insurance policies, unlike standard home policies.

2. Check eligibility: Not every homeowner will qualify for a California FAIR Plan. Your broker will conduct an extensive search to determine if you are eligible for preferred homeowners insurance coverage through the traditional marketplace before you can proceed with the FAIR Plan application.

3. Complete the application: If you work with a broker, they can assist you in completing the application, selecting an appropriate coverage amount and endorsements, and calculating the fair market value of your home. Once the application is finished, you’ll receive an instant rate quote. Note that applying for a FAIR Plan without a broker will not provide an immediate price estimate.

4. Schedule a home inspection: Depending on your home’s location, a representative from the FAIR Plan may arrange a home inspection to assess your home’s insurability better. For instance, if your house is situated in a densely wooded area with a high wildfire risk, it could affect your eligibility for coverage.

5. Pay the premium: Once your application is approved, the final step is to make the first month’s premium payment. Your coverage will only become effective once the initial payment is made.