It’s the threat on everyone’s minds these days. The worst case scenario, the unknown last resort. The California FAIR Plan – once just reserved for those in the most remote rural locations or urban areas prone to rioting – is now creeping its way into Amador County as the traditional insurers leave the area crying wildfire.
But what exactly is the California FAIR Plan? As we have started make our peace with what might be the most misunderstood insurance program in the state, we’ve discovered there’s a lot of confusing information out there about what it covers – and no, it’s not just fire.
The California FAIR Plan is just that, misunderstood. It’s actually not as scary as it seems once you get to know it! We’ve compiled a list of the most common questions and important information you need to know when being offered a FAIR Plan quote below. Take a look, but always feel free to call us if you have any questions.
What is the California FAIR Plan?
The California Fair Access to Insurance Requirements (“FAIR”) Plan was created in July 1968 following the 1960’s brush fires and riots. It is an insurance pool established to assure the availability of basic property insurance to people who, due to reasons beyond their control, have been unable to obtain insurance in the voluntary insurance market.
Do my tax dollars fund the California FAIR Plan?
No! The FAIR Plan is not a state agency, nor an insurance company. There is no public funding, or taxpayer money involved. Instead, the FAIR Plan is an insurance pool, made up of all the insurance companies licensed to do business in California – ie. Nationwide, The Hartford, CIG. This makes the FAIR Plan stronger than any single insurer, since it is backed by the capital and surplus of all insurance companies writing property insurance in the state. Each member company participates in the profits, losses and expenses of the Plan in direct proportion to its market share of business written in the state.
Why is the FAIR Plan a “last resort?”
In sum, the FAIR Plan provides basic fire insurance coverage for residential structures, as well as personal property coverages when the loss occurs because of fire, internal explosion, or smoke.
“Extended Coverage” can be purchased to cover the following: Wind, Hail, Explosion, Riot or Civil Commotion, Damage caused by an Aircraft or Vehicle colliding with your home, Volcanic Eruption, and Vandalism or Malicious Mischief.
Why do I need a 2nd policy with the FAIR Plan?
A FAIR Plan Policy does not include coverage for many common causes of loss that are typically included in a standard homeowners policy, such as theft, water damage and liability. That is why the Difference in Conditions “DIC” policy is added as a companion to the FAIR plan. It covers your home and personal property for these more common types of losses. It WILL NOT cover losses due to the basic and extended coverages offered by the FAIR Plan.
Will my mortgage company accept the FAIR Plan as adequate insurance coverage?
Yes, but only on the following two conditions:
1. The FAIR Plan is paired with a DIC policy so complete coverage is in place.
2. You qualify for, and elect, “Replacement Cost Coverage.”
In the event of a loss, how are California FAIR Plan Policies paid out?
Unlike a traditional insurance policy, the California FAIR Plan defaults to Actual Cash Value coverage. This means they pay the cost to repair or replace the damaged part of the dwelling, minus a deduction for physical depreciation. If you have a total loss, Actual Cash Value coverage pays the fair market value of the dwelling, which is the amount a willing buyer would pay a willing seller for the dwelling (not including land) in its condition immediately before the loss. It is recommended that you select Replacement Cost Coverage if you qualify.
I have a mortgage and they require Replacement Cost Coverage, how do I qualify for that?
Replacement Cost pays to repair or replace the damaged or destroyed building with like or equivalent construction, up to the policy limits. The California FAIR Plan offers Replacement Cost Coverage on houses that are 25 years old or less automatically. If your home is older, it will qualify for Replacement Cost Coverage if the roof has been replaced within the last 25 years.
Can my insurance payments be made through an escrow account?
The down payment for The FAIR Plan must be made via a personal checking account. The down payment is 40% of the total premium. The remainder of the premium can be billed to your mortgage. DIC policies can be billed to your mortgage company in full, without a down payment.