FAIR Plan insurance, which stands for Fair Access to Insurance Requirements Plan, is a high-risk home insurance policy designed as a last resort option for homeowners who cannot obtain coverage from a standard insurance provider. It helps those who live in areas or have homes considered too risky by traditional insurers.
FAIR Plan policies typically offer less coverage than standard home insurance and are generally more expensive. However, they are an excellent option for homeowners living in high-risk zones or those with other red flags that prevent them from getting standard home insurance.
How Does FAIR Plan Insurance Work?
FAIR Plan insurance is a state-regulated program supported by a pool of private insurance companies. Instead of being directly provided by one company, the FAIR Plan pools resources from multiple insurers to collectively cover high-risk properties. This approach distributes the risk, limiting the exposure of any single insurer while ensuring coverage for homeowners who cannot obtain insurance through standard providers.
When filing a claim under a FAIR Plan policy, the pool of participating insurers shares the financial responsibility for the loss. FAIR Plan insurance is typically considered a last-resort option, and homeowners must demonstrate that they have been denied coverage by private insurers before they are eligible to apply for a FAIR Plan policy.
Coverage and Limitations
FAIR Plan homeowners insurance generally provides more limited coverage compared to standard policies. FAIR Plans typically cover specific perils such as windstorms, fires, vandalism, and riots, but coverage can vary and may be more restrictive depending on the state.
Most FAIR Plans offer:
- Dwelling coverage: Pays to repair or rebuild the home's structure if it is damaged or destroyed by perils listed in the policy, such as windstorms, fires, vandalism, or riots.
- Contents coverage: Pays for personal belongings damaged or destroyed by the covered perils.
- Personal liability coverage: Pays for property damage or medical expenses others incur if the homeowner is legally liable.
Some states may expand coverage to include:
- Losses from theft or burglary. However, FAIR Plans generally do not cover personal liability, loss of use, or medical payments for the insured.
- Coverage for other structures, such as fences.
- Law or ordinance coverage.
- Debris removal.
- Earthquake insurance.
In most states, FAIR Plan insurance covers homes at their actual cash value, meaning the home's depreciated value rather than the cost to replace it.
Eligibility and How to Obtain FAIR Plan Insurance
Eligibility for FAIR Plan insurance varies by state; however, the plan is generally available to homeowners in high-risk areas. These areas may be deemed high-risk due to environmental factors, crime rates, or the condition of the homes.
A property may be high risk if it is:
- Located in an area prone to extreme weather conditions, such as tornadoes, windstorms, hurricanes, or hail.
- Situated in a high-crime area with higher risks of theft or vandalism.
- Older, with outdated systems (e.g., heating, plumbing, electrical) that increase the risk of fire or water damage.
Homeowners with a claims history may also struggle to obtain a standard insurance policy. They may need to resort to the FAIR Plan. In many cases, high-risk homeowners must make improvements to reduce the risk to their property.
Examples of improvements could include:
- Repairs to the roof.
- Updates to plumbing or electrical systems.
- Installing a home security system.
Other eligibility criteria may include:
- At least two private companies have denied homeowner insurance coverage (some states may require more denials).
- The homeowner must reapply every two years to check if they can secure coverage from the private market.
- The property passes an inspection to confirm it is insurable.
- The property has no outstanding assessments, taxes, penalties, or liens.
- The property complies with housing, sanitation, and building regulations.
How to Obtain a FAIR Plan Insurance Policy
The process for obtaining FAIR Plan insurance varies by state, but homeowners generally need to follow these steps:
- Find a licensed insurance agent or broker to help locate and apply for a FAIR Plan. Some states allow homeowners to apply directly to the state.
- Complete the application for coverage with the state.
- Pay the minimum premium deposit at the time of application.
- Provide the required photos of the property.
- Submit any additional documents or information as the state requires.
- Provide details about the mortgage lender.
- Ensure the property passes inspection.
Homeowners should review the specific eligibility requirements for their state to ensure compliance and understand their coverage options.
Takeaway
Living in certain high-risk areas can prevent homeowners from getting standard home insurance. FAIR Plan insurance provides a state-approved solution for these individuals, offering coverage when other options are unavailable. While it may be more limited and costly, it allows homeowners in high-risk zones to protect their property from major losses.