My Lender Says I Only Need the California FAIR Plan. Is That True?

My Lender Says I Only Need the California FAIR Plan. Is That True?

We hear this a lot, especially from new homebuyers navigating California’s complex insurance landscape for the first time. After receiving their mortgage approval, they’re told, “Just get a FAIR Plan policy. That’s all your lender requires.”

But here’s what you really need to know:

The California FAIR Plan is not full home insurance.

And if it’s the only policy you have, you’re exposed to far more than you might think.

Let’s break down what the FAIR Plan is, what it’s not, and why relying on it alone could be a financial risk, especially now.

What Is the California FAIR Plan?

The California FAIR Plan is a last-resort fire insurance policy created by the state. It exists for homeowners who can’t get traditional insurance due to high fire risk or other underwriting challenges.

It covers:

  • Fire and lightning
  • Smoke
  • Internal explosions

That’s it. It doesn’t include liability, water damage, theft, personal property, or living expenses if you're displaced. To get those, you need to pair it with a Difference in Conditions (DIC) policy or companion policy from a private insurer.

So if your lender tells you the FAIR Plan alone is enough, they’re referring to the bare legal minimum required to close on your loan. Not what’s actually going to protect your home, belongings, or future.

Why Are Lenders Okay With the FAIR Plan?

Lenders are only concerned with protecting their asset: the structure itself. They’re not required to care about your personal property, your out-of-pocket losses, or whether you’ll have coverage for alternative living expenses if your home becomes unlivable.

That’s why some mortgage companies will accept the FAIR Plan with no questions asked. It technically meets their needs, but not necessarily yours.

What the FAIR Plan Doesn’t Cover

Let’s be clear: relying on the FAIR Plan by itself means giving up protection in key areas like:

  • Liability: If someone is injured on your property and sues you, you're on your own.
  • Personal Property: Your clothes, electronics, furniture, appliances, none of it is covered.
  • Water Damage: Burst pipes? Roof leaks? Not included.
  • Loss of Use: If your home is uninhabitable after a covered event, there’s no help with hotel stays, meals, or temporary rentals.
  • Theft or Vandalism: Not covered.
  • Wind, Hail, and Civil Unrest: Not covered.

You’re only protected against fire and a couple of specific events. In real-world terms, the FAIR Plan is like wearing a helmet without the rest of your gear, it helps, but it’s nowhere near enough.

Why the FAIR Plan Alone Is Becoming Riskier

The FAIR Plan itself is under financial stress, and recent wildfires in Southern California are pushing it closer to the edge.

After the L.A. fires, industry analysts are warning that the FAIR Plan may need outside financial help to stay solvent. When that happens, insurance companies doing business in California are required to fund the shortfall, but those same companies can pass the cost down to you, the policyholder.

In other words:

  • If the FAIR Plan runs out of money, you still end up paying, whether directly or through surcharges on your private policies.
  • As losses mount, private carriers may raise rates across the board to cover their share of the FAIR Plan’s burden.
  • If those rate hikes make the market unprofitable, more insurers may pull out of California, making it harder (and more expensive) for everyone to get coverage.

This ripple effect doesn’t just hit people in high-risk areas. It spreads across the entire state, raising premiums even for homeowners nowhere near a fire zone.

What’s Driving the FAIR Plan Strain?

  • Massive fire losses: Wildfires are more frequent and more severe. The FAIR Plan isn’t built to absorb that many large-scale payouts.
  • Rising construction costs: Labor shortages, inflation, and supply chain issues are making rebuilds more expensive and slower.
  • Climate uncertainty: With La Niña and severe droughts, experts are predicting more Santa Ana wind events and dry conditions that make fires more destructive.

The FAIR Plan was never designed to be a long-term solution for millions of homeowners. It’s a backup, an emergency option. But now, it’s being used as a primary source of coverage in entire neighborhoods, and the math doesn’t work.

The Real Cost of Having Just the FAIR Plan

Let’s say your lender accepts the FAIR Plan and you go with it, no companion policy, no additional coverage.

Then a wildfire burns through your neighborhood. Your home is damaged, your belongings are lost, and you have to evacuate for weeks.

Here’s what happens:

  • Your home’s structure may be covered, up to the stated limit.
  • Your personal property is gone, with no reimbursement.
  • You’re stuck paying for temporary housing on your own.
  • If your pipes burst or your roof leaks after the fire, that damage isn’t covered either.
  • You face months of uncertainty with no liability protection if someone sues you.

That’s not insurance. That’s financial roulette.

What You Actually Need

At Farmers Insurance – Young Douglas, we help clients in high-risk areas every day. We understand the frustration of being declined by private carriers and the confusion around layered policies.

Here’s how we handle it:

  1. FAIR Plan + Companion Policy
    • The FAIR Plan covers fire and smoke.
    • The companion policy fills in the missing gaps: theft, liability, loss of use, water damage, etc.
  2. Review of Coverage Limits
    • We check your home’s replacement cost against current construction rates.
    • We make sure your liability and personal property limits make sense for your lifestyle and risks.
  3. Optional Endorsements
    • Extended replacement cost, ordinance and law coverage, equipment breakdown, these are critical in today’s market.
  4. Annual Reassessment
    • Markets shift. Wildfire zones are redrawn. Rates change. We reassess your needs annually to keep you protected without overpaying.

Your Lender’s Minimum Is Not Your Maximum

Just because your lender says you only need the FAIR Plan doesn’t mean that’s all you should carry. Their job is to protect their loan. Ours is to protect you.

We get it, insurance in California is complicated, especially right now. But you don’t have to figure it out alone.

Let’s make sure you have the right coverage before something happens, not after.

Need help navigating the FAIR Plan and companion coverage?

Contact Farmers Insurance – Young Douglas for a real policy review, not just a bare-minimum quote. We’ll walk you through your options, explain what’s changing, and help you protect what matters.

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