FAIR Plan Insurance vs. Private Homeowners Insurance Policy

A homeowners insurance policy insures your property against certain losses and damages.

It can significantly reduce your out-of-pocket expense, protecting your most valuable asset and your peace of mind.

But while homeowners insurance is highly recommended and useful, it’s harder for some homeowners to qualify for a policy.

Sometimes, home insurance providers view a property as “too risky.”

And as a result:

They refuse to offer coverage.

Fortunately, you have options when unable to get insurance from a private company. As a last resort, you might qualify for a FAIR (Fair Access to Insurance Requirements) plan.

What exactly is a FAIR plan, though? And how does it work?

What is a FAIR Plan?

FAIR plans are state-mandated programs designed specifically for homeowners who otherwise wouldn’t qualify for homeowners insurance.

Different types of perils can damage a property. These include windstorms, fire, theft, and vandalism.

Standard home insurance policies offered by private companies protect against these perils. But although insurance protects homes, home insurance providers consider a property’s “risk level” before issuing a policy.

And unfortunately, if the company concludes that you’re in a high-risk area, or believes the home has too many hazards, they might reject your application.

FAIR plans, on the other hand, are easier to get because these are subsidized by different insurance companies and taxpayers.

These plans cover different types of perils like standard homeowners insurance. These include fire, theft, windstorms, and vandalism.

But you might ask, what types of properties do private insurers consider too risky?

Keep in mind, standards vary from company to company. To provide an example, you might live in an area with a “higher than normal” risk for windstorms.

Maybe there’s been a string of major tornadoes, hurricanes, or other named storms in recent years. If an insurance provider expects this pattern to continue, they might stop offering coverage in your area.

From their standpoint, it’s too risky to insure homeowners in this region.

Or, maybe you live in an area hit hard by natural burning wildfires. Typically, standard homeowners insurance policies will cover this type of damage.

But if wildfires become “more common” in your area, some companies might cancel or refuse to renew your policy.

In addition, it might be difficult to get private homeowners insurance if you live in a high-crime area. Or if your house is poorly maintained.

Some insurance companies conduct home inspections, although these are more common with older homes. Some inspections reveal serious hazards such as a worn roof or electrical problems that could cause a fire.

Pros

1. Access to home insurance

The main benefit of a FAIR plan is the ability to get coverage. Homeowners insurance is an important policy.

It doesn’t only repair your home, it also completely rebuilds your home after a major disaster. Without coverage, you would pay these damages yourself.

Plus, if you’re financing your home, your mortgage lender will require a policy. You’ll need to provide proof of this policy before closing.

If you’re unable to qualify for a standard private policy, a FAIR plan helps you meet your lender’s requirement.

2. Provides dwelling and personal property coverage

FAIR plans are also beneficial because they provide both dwelling and personal property coverage.

These are two important components of a home insurance policy.

Dwelling coverage protects the actual structure or the house.

Personal property coverage protects your belongings inside the home.

Cons

1. Only available in certain states

The downside is that FAIR plans aren’t available in every state.

Currently, these plans are only available in about 35 states (including the District of Columbia).

Plans are common in those states with a higher risk for severe weather.

So if you’re unable to get a private standard policy because you live in an area prone to certain natural disasters, in all likelihood your state offers a FAIR plan.

But what if your state doesn’t offer a FAIR plan and you can’t get coverage? In this situation, insurance providers might approve your application if you make certain updates to your home.

This might include replacing a roof or fixing an old electrical system. If this isn’t option, some insurance companies offer non-standard homeowners insurance.

Understand, though, these policies are more expensive and provide less coverage.

2. Lower limits

Although FAIR plans cover dwelling and personal property, they also offer lower coverage limits compared to a standard homeowners insurance policy.

With a standard policy, you receive enough dwelling coverage to completely rebuild your home after a major event. And in most cases, your personal property coverage is about 50 percent to 70 percent of dwelling coverage.

Under a FAIR plan, dwelling coverage caps at a certain amount, regardless of the home’s value. This maximum varies by state.

For example, one state might set a maximum of $300,000 for dwelling coverage, whereas another state caps the maximum at $1 million.

Similarly, some states might limit personal property coverage to 50 percent of dwelling coverage.

3. Doesn’t include loss of use protection

Keep in mind that many FAIR plans don’t provide loss of use protection. This is typical with a standard homeowners insurance policy.

If your home becomes uninhabitable, loss of use pays your extra living expenses. You can use funds to pay for hotel stays, a rental house, and restaurant meals.

With a standard policy, loss of use protection is 20 percent of dwelling coverage.

4. Doesn’t include liability protection

Similarly, FAIR plans typically don’t include liability protection. If someone is injured on your property, liability can cover their medical expenses, and any court-ordered award.

Liability also offers protection if you damage another person’s personal property. Standard policies include a minimum of $100,000 in liability.

5. More expensive than private insurance

Unfortunately, FAIR plans are also more expensive than a standard private home insurance policy. Rates vary by state, though.

Factors that determine your insurance premiums include the age and location of your home, square footage, local crime rates, and your amount of coverage.

When Does It Make Sense to Get a FAIR Plan?

To be clear, though, FAIR plans are a “last resort” home insurance policy.

Also, this isn’t discounted insurance.

These policies are specifically for homeowners who have been denied private standard coverage due to a high-risk property.

But having a high-risk property doesn’t mean that you’ll qualify for a FAIR plan. To get a plan, you must meet your state’s requirements.

For example, some states might require that you’re rejected by three or four private home insurance providers before you’re eligible for a FAIR plan.

In addition, your state might require that you take steps to reduce your risk. By reducing the risk, you might become eligible for a private plan.

Of course, certain risks are beyond your control. You might be able to update your roof or your home’s electrical system. But you can’t control the risk of natural disaster or crime in your area.

How to Get a FAIR Plan

If you have a high-risk property and you’ve been turned down for standard homeowners insurance, contact your state’s department of insurance to start the process.

In most cases, you’ll complete an insurance application through an insurance agent.

Your state can point you in the right direction and connect you with the right agent.

How to Increase Your Chances of Qualifying for Private Insurance

Since FAIR plans are more expensive and have limited coverage, eventually you’ll want to qualify for private homeowners insurance.

Even if you start off with a FAIR plan, you can re-apply for private home insurance yearly—to see if you become eligible. As previously mentioned, though, some factors are beyond your control. So the property might remain high-risk for as long as you own it.

Improve your home

Still, you can improve your chances of qualifying for private homeowners insurance.

For example, keep your home in good condition.

If you have an older home, make sure you replace an old, damaged roof. And if you live in an area with severe windstorms, consider buying shatterproof windows.

If a home inspection reveals electrical issues—posing a fire risk—replace or fix your electrical system.

Consider various riders

You can also increase your eligibility by buying insurance riders.

This can include extra windstorm protection.

Or if you live in an area with a higher risk for crime or vandalism, updating your security can help you qualify for a private policy.

This might include putting a fence around your property, installing security cameras, or a burglar alarm.

Conclusion

Homeowners insurance protects your most important asset, but getting a policy isn’t easy for some people.

If you have a high-risk property, take steps to mitigate your risk and make your home insurable. For example, according to Insure.com the average annual cost of homeowners insurance nationally for a policy with $300,000 coverage and $1,000 deductible is $2,540.

If you can’t lower your risk, look into getting a FAIR plan through your state. Although the coverage is limited and costs more, having some home insurance is better than none.