Insurance Glossary: Personal Lines - California Fair Plan Terms

Personal Lines – California Fair Plan Terms

Here are common terms specific to personal lines insurance, particularly for policies under the California Fair Plan. The California Fair Plan provides coverage for homes that are unable to obtain insurance through the traditional market, typically due to high risk, such as in areas prone to wildfires.

**1. California Fair Plan (CFP)

A state-mandated program that provides basic property insurance coverage for homes in high-risk areas, including those prone to wildfires or other catastrophic risks. It is often a last resort for homeowners who cannot get coverage from standard insurers.

**2. Basic Property Coverage

The coverage provided under the California Fair Plan for the structure of your home (dwelling), including damage caused by fire, lightning, or vandalism, but excluding most types of water damage and earthquakes.

**3. Named Perils

The types of risks or causes of loss that are explicitly covered by the policy. For the California Fair Plan, this typically includes fire, vandalism, and windstorm, but not flood or earthquake damage.

**4. Exclusions

The specific risks or causes of damage that are not covered by the policy. Common exclusions in California Fair Plan policies include flood, earthquake, and landslides. It is important to check the exclusions section to know what is not covered.

**5. Dwelling Coverage

A type of coverage under the California Fair Plan that protects the structure of the insured home, including the walls, roof, and foundation, from covered events like fire and vandalism.

**6. Loss of Use (Additional Living Expenses)

If the home becomes uninhabitable due to a covered loss, the California Fair Plan may provide additional living expenses to cover temporary housing and other costs while the home is being repaired.

**7. Endorsement

An add-on or amendment to a California Fair Plan policy that expands coverage or adds additional protections. For example, an endorsement might add coverage for theft or liability, which are not included in the base Fair Plan policy.

**8. Companion Policy (Difference in Conditions Policy)

A policy purchased in conjunction with a California Fair Plan policy to fill gaps in coverage. For example, while the Fair Plan may not cover theft or water damage, a companion policy can provide that additional protection, allowing homeowners to secure broader coverage.

**9. Excess Coverage

In certain cases, policyholders may need to purchase additional coverage to protect against gaps left by the California Fair Plan. Excess coverage can help address the shortfall, especially for higher-value homes.

**10. Fire and Vandalism

These are often the main covered perils under the California Fair Plan policy. While the policy does provide basic protection, it generally excludes other types of damage unless specifically added through endorsements.

**11. Premium

The amount homeowners must pay for their California Fair Plan policy. Premiums are generally based on the home’s location, construction type, and the coverage limits selected.

**12. Windstorm Coverage

A standard feature of the California Fair Plan policy that covers damage caused by high winds or storms. However, this does not include damage from flooding caused by rain or water intrusion, which is often excluded.

**13. Underwriting

The process by which the California Fair Plan evaluates the eligibility of a property for coverage. Properties in high-risk areas (e.g., near wildfires or floods) are more likely to be eligible for Fair Plan coverage if they cannot get traditional insurance.

**14. Actual Cash Value (ACV)

A method of reimbursement for losses under the California Fair Plan. ACV considers depreciation, meaning if you lose property, the insurer will pay the value of the property at the time of loss, not the replacement cost.

**15. Replacement Cost Coverage

A higher level of coverage where the insurer pays for the full cost to repair or replace damaged property without factoring in depreciation. This may be an option added to the California Fair Plan through endorsements or companion policies.

These terms are important to understand when considering or managing a policy with the California Fair Plan. As the Fair Plan provides limited coverage compared to standard homeowners policies, it's essential to evaluate whether additional coverage, such as a companion policy, is necessary to fully protect your home.

If you have any further questions or would like assistance with California Fair Plan policies or endorsements, contact Armada Insurance Services today.