California FAIR Plan vs. Private Insurance: Which One’s Right for You?

Many homeowners spend thousands on insurance policies that fail to provide actual coverage. Sounds crazy, right? But that’s the unfortunate reality for a lot of Californians these days. Between wildfire risk, insurer pullouts, and skyrocketing premiums, gaps in coverage have become depressingly common.

Homeowners are finding out the hard way that their “comprehensive” policy doesn’t cover everything they thought it did. This is why the California FAIR Plan is so important. It’s a safety net for when private insurers won’t cover you. But is it really the best option for you or just a last resort? Let’s compare how the FAIR Plan stacks up against private insurance and which one is really right for your home.

California’s Home Insurance Crisis and Wildfire Risk

You can be the perfect homeowner (no claims history, current on maintenance, fire-safe landscaping) and still have your insurance company drop you. It’s the reality of being a homeowner in California. Insurance companies have refused to renew approximately 2.8 million homeowner policies statewide in recent years. Why? The risk of wildfire is simply too high. The incidence of large wildfires (greater than 10,000 acres) has more than doubled in the last few decades. In 2020 alone, approximately 4.2 million acres burned in the state.

The state’s increasing heat and dry conditions, combined with a high density of vegetation, have left large regions of the state effectively “uninsurable.” In the insurance industry, that means too much risk. For the homeowner, it means fewer options, higher premiums, or even cancellations. This is why the California FAIR Plan insurance has seen so many new applicants in recent years. The FAIR Plan is an insurance of last resort when private companies withdraw from the market.

What Is the California FAIR Plan?

The California FAIR Plan is an insurance pool funded by all licensed California insurance companies. This plan was created to ensure that every homeowner has basic insurance coverage when they are unable to obtain insurance through normal channels or when an insurance company has declined to renew their policy, especially in wildfire-prone areas. The California FAIR Plan is a last resort for consumers who have been unable to obtain coverage from private insurance companies.

To get the FAIR Plan, you must first prove that you have made a good effort to obtain insurance from the normal market. The program is administered under the regulation of the California Department of Insurance.

What Does California FAIR Plan Cover?

The California FAIR Plan covers your home and possessions against such losses caused by fire, lightning, internal explosion, and smoke. If, for example, your house burns down in a wildfire, you can rest easy knowing the FAIR Plan will cover you up to the limits of your policy. You can purchase up to $3 million in residential policy limits and $20 million in commercial policy limits per site.

It won’t, however, cover such theft, water damage, liability, or the many other risks that standard private insurance typically covers. You may purchase optional endorsements that offer additional coverage for wind or hail damage, vandalism, and coverage for detached structures. If you want broader coverage, you can also buy a separate “Difference in Conditions” (DIC) policy from a private insurer, which is usually combined with the FAIR Plan policy. This combo helps fill in the gaps in your coverage and offers you a more complete insurance package.

Key Differences Between the FAIR Plan and Private Insurance

Before you decide, it helps to see how the two really differ:

1. Scope of coverage: Private insurance has broad coverage of many perils (fire, theft, water, liability, etc.). The FAIR Plan only covers fire, lightning, smoke, and internal explosion, unless you purchase additional endorsements.

2. Qualifications: Qualifications for private insurance are determined by whether your property meets their underwriting standards. Qualifications for the FAIR Plan are based solely on your ability to prove that you have been denied insurance by a private carrier.

3. Cost: The FAIR Plan may have a higher rate per dollar of insurance because it only insures high-risk properties. The California FAIR Plan cost about $3,200 in premiums per year, while private home insurance policyholders pay an average annual premium of about $1,632.

4. Flexibility: Private insurance carriers allow you to choose and customize your coverage and add "perks" to your policy. The FAIR Plan has very limited coverage. Homeowners often purchase alongside a "Difference in Conditions" (DIC) policy to cover exposures that are not included in the FAIR Plan policy.

The Hidden Risk Behind the FAIR Plan

This is the part that doesn’t get talked about a lot: the California FAIR Plan isn’t perfect. The program revealed a $1 billion shortfall in 2024 after enduring several devastating wildfires in Los Angeles County. Remember, the program is run with a pool of resources from the private insurers in California; so when claims exceed the plan’s reserves, participating companies get assessed to cover the loss.

To put it simply, in the event of another catastrophic wildfire season, there could be delays in paying out claims, or insurance companies could pass the costs back to you in the form of higher premiums. The limited reserves of the FAIR Plan and the fact that its exposure is increasing every year mean that in the event of another billion-dollar wildfire, it may not be able to cover all the costs. So while you’re securing insurance, it’s a good idea to make your coverage as safe as possible and lessen your chances of having to rely on the program in the future.

Smarter Alternatives Beyond the FAIR Plan

If it sounds like the FAIR Plan is a last resort, that’s because it often is. However, California homeowners in high-risk areas now have alternatives to the California FAIR Plan coverage. They’re generally known as Light E&S (Excess and Surplus) markets, and they’re made up of private insurers focused on properties with moderate wildfire exposure risk or fire-hardening improvements. Policies from these carriers can offer wider coverage and flexibility than the FAIR Plan.

Light E&S carriers will cover liability, water damage, theft, and personal property, which the FAIR Plan doesn’t. They’ll also offer custom deductibles and replacement cost options, so you can tailor the policy to your risk tolerance and budget. Also, you only need a single policy rather than a separate “Difference in Conditions” add-on, which is easier to manage.

Final Thoughts: Which One’s Right for You?

Choosing California FAIR Plan or private insurance isn’t always a black and white decision. Factors like your home’s location, its risk profile, and your desired coverage all play a role in determining your best option. The FAIR Plan provides an essential coverage option for those who are left with nowhere else to turn. However, limited coverage, higher costs, and that glaring billion-dollar deficit make it abundantly clear that the FAIR Plan is a stopgap measure, not a long-term solution.

If your home is in a wildfire-prone area but you’ve invested in fire-hardening improvements, you might have more coverage options than you realize. Light E&S markets offer customizable coverage with fewer gaps than the FAIR Plan.

Quotsy makes it easy to shop around and compare alternatives to California FAIR Plan coverage from a variety of private and Light E&S insurers, all from the comfort of your home. Quotsy helps you to make an informed decision about your home’s risk profile and find coverage that fits. Find a coverage that works for you today.