A FAIR Plan policy can satisfy a lender’s request for proof of insurance and still leave a home exposed. Many buyers and sellers do not learn the difference until a claim or an escrow deadline forces the question. So here is FAIR Plan coverage in plain terms.
What FAIR Plan Coverage Includes
The California FAIR Plan is the state’s insurer of last resort. Its dwelling policy is a named-peril policy. In other words, it pays only for the causes of loss listed in the policy. Those are fire and lightning, internal explosion, and smoke. Optional coverages, such as vandalism and malicious mischief, are available for an added cost. The FAIR Plan calls its product basic fire insurance. It is meant as a temporary solution when a traditional carrier will not write the property.
What FAIR Plan Coverage Leaves Out
A standard homeowners policy bundles many protections. The FAIR Plan does not. For example, water damage, theft, and liability coverage are not part of the dwelling policy. Flood and earthquake damage also need their own policies. As a result, a burst pipe, a break-in, or an injured guest would fall outside a basic FAIR Plan policy.
How a DIC Policy Fills the Gap
A difference in conditions policy, or DIC, covers what the FAIR Plan does not. It adds protections such as water damage, theft, and liability. When paired with a FAIR Plan policy, a DIC is designed to approximate a comprehensive homeowners policy. However, the FAIR Plan does not sell DIC policies. Your broker has to place one with a separate insurer. That means a second premium. FAIR Plan premiums average roughly $3,000 to $3,200 a year statewide, and a DIC adds cost on top.
What This Means in a Sale
Cost comes first. The 29.1% FAIR Plan rate increase takes effect October 15, 2026. However, that figure is a statewide average, so individual changes will vary.
Coverage comes second. If you are buying, ask for quotes on both the FAIR Plan policy and a DIC. Then ask your lender whether fire-only coverage meets its requirements. Also ask whether the policy pays actual cash value or replacement cost. If you are selling, know what your buyer is likely to face. A property that only qualifies for FAIR Plan coverage costs more to insure than the headline premium suggests.
Previously, we covered the timing in Part 4 for sellers and Part 5 for buyers. Next week, we look at how all of this lands on landlords and investors.
Jeffrey Kam, MBA
Broker/Owner, Green Street Real Estate
Source: California FAIR Plan, Dwelling Policy and Difference in Conditions pages — https://www.cfpnet.com/policies/dwelling/