For many homeowners in our local canyons and hillsides, the California FAIR Plan (CFP) has become a necessary reality. It provides a vital safety net when the standard insurance market pulls back due to wildfire risk.
However, it is important to understand that a FAIR Plan policy is a specialized fire policy, not a comprehensive homeowners policy. Because it is designed to address a specific risk, it leaves several "quiet" exposures that can surprise homeowners during a claim.
Here is how the FAIR Plan differs from a traditional policy and how you can ensure your family is fully protected.
Understanding "Named Perils" vs. Comprehensive Coverage
Most of us are used to "all-risk" insurance, where the company covers everything except a few specific exclusions (like earthquakes or war). The FAIR Plan works differently. It only covers "Named Perils." If a loss occurs and it isn't explicitly listed in the policy—specifically Fire, Lightning, Smoke, or Internal Explosion—there is no coverage. This leaves a significant portion of your home’s value vulnerable to everyday accidents.
Key Areas Where Your Protection Might Be Thin
- Water Damage and Pipe Bursts: In a standard policy, a burst pipe or a leaking appliance is one of the most common claims. Under the FAIR Plan, this is not a covered peril. If a water heater fails and floods your hardwood floors, the repair costs fall entirely on you.
- Theft : While the FAIR Plan protects your home’s structure from fire, it does not naturally include coverage for theft of your belongings or damage caused by a break-in. You need a supplemental policy for this coverage.
- Liability Exposure: If a delivery driver slips on your driveway or a guest is injured on your property, a standard policy provides a legal defense and pays for damages. The FAIR Plan provides zero liability coverage. Without an additional policy, your personal assets and home equity could be at risk in a lawsuit.
- Falling Objects and Wind: Standard policies cover damage from falling trees or windstorms. On a FAIR Plan policy, unless you have specifically added an "Extended Coverage" endorsement, these common weather events are often excluded.
The Solution: The "Companion" Policy
The good news is that you don't have to live with these gaps. In the insurance world, we use a tool called a Difference in Conditions (DIC) policy—also known as a "Companion" policy.
Think of the FAIR Plan as the foundation of your protection (covering the big risk of fire) and the DIC policy as the walls and roof that complete the structure.
What it Covers | California FAIR Plan | DIC (Companion) Policy |
Wildfire & Smoke | Yes | No (Covered by CFP) |
Personal Liability | No | Yes |
Theft & Personal Property | No | Yes |
Water Damage / Bursted Pipes | No | Yes |
Medical Payments to Others | No | Yes |
Proactive Planning
To make sure you have comprehensive coverage, it's important to make sure you have a DIC policy in place. At Ares Insurance we are happy to help get this policy and review your current coverages.
This blog post is not offered, and should not be relied on, as insurance advice. You should consult an insurance agent for advice in specific situations.