In continuing our series about homeowner insurance and the recent market challenges, we are going to discuss the California Fair Plan. Our last two articles focused on changes in the home insurance market, and actions you can take to mitigate the premium increases. Unfortunately, beyond the rate increases most homeowners are receiving, many are being canceled on their renewal for their proximity to “brush areas” or “fire zones”. What happens after you call several companies and are told they can’t insure your home on standard home insurance policy and your only option is the California Fair Plan with a Difference in Conditions policy? What does that mean?
What is the California Fair Plan?
Per the California Fair Plan (CFP) website, the CFP is a syndicated pool comprised of all insurers licensed to conduct property/casualty business in California. Each member company participates in profits, losses, and expenses in direct proportion to the insurer’s market share in the state. In plain English, it is an association of the California insurers established by State statute in 1968. CFP issues policies on behalf of the association with the stated purpose to provide basic fire insurance coverage for higher risk properties when traditional insurance companies will not. It operates as the “carrier of last result” when no other coverage options are available. It is not a State Agency or a Public Entity, and it does not receive any taxpayer funding.
What does the California Fair Plan cover?
CFP primarily provides coverage for fire, smoke, lightning, and internal explosions. For an additional premium coverage can be added for wind/hail and vandalism. The CFP policy does not cover you for water damage (most common type of claim), theft, liability, and several other types of losses typically included under a standard homeowner policy.
While a standard homeowner policy is a “package” policy with most key coverages already built in, a CFP policy is more like an ala carte policy. This means working with the broker to choose which coverages you need/want and what level you need/want. For example, on a standard home policy, the coverage limit for your belongings is a fixed percentage of the home rebuild cost. With a CFP policy, you can choose to decline this coverage or select the coverage limit you want. This is true for most of the coverages they offer. Overall, on a CFP policy when all limits are totaled together, they must be under $3 million. That is the highest amount of coverage they offer.
What is a Difference in Conditions (DIC) policy?
As discussed above, the CFP policy only offers coverage for limited types of losses. The Difference in Conditions (DIC) policy is designed to fill the coverage gaps. Sometimes called a “wrap-around”, a DIC policy provides the typical homeowner coverages and types of losses except of fire, smoke, lightning, and internal explosion. As a result, when combined, a CFP and DIC can provide similar coverage to a standard homeowner policy. However, the combined cost of a CFP and DIC policy will likely be higher than a standard home policy. One way to offset some of this higher cost is to insure your auto policy with the same company as your DIC policy and take advantage of the Auto/home discounts.
Although being canceled can be a scary experience, the California Fair Plan combined with a Difference in Conditions policy is a viable option if you are unable to find a standard homeowner policy. Working with an experienced broker will give you the best opportunity to secure the right coverage for your needs and maximize all possible discounts.
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