What are FAIR Plans and How Do You Insure a High-Risk Home?

Because of the higher risks of a disaster occurring, some homes are difficult to get covered by homeowners insurance companies. It can be difficult to insure a high-risk home, but it is possible. There are several strategies to consider, and many states offer a back-up option: FAIR plans.

What is the FAIR Plan?

FAIR (Fair Access to Insurance Requirements) programs were developed to assist people with high-risk homes in obtaining insurance. Each state has one, which is subsidized in part by taxpayers and private insurers. Rather than a single company taking on the risk of your home, multiple sources collaborate to "carry your risk." If a peril or natural disaster strikes an insured home, the cost of the claim is split among the participating companies. The FAIR plan is only available as a last resort after you have been denied by several private homeowners insurance companies. Every state does not have a program. It is mostly made up of states with high risk areas.

When is a Home Considered High-Risk?

Homes in high-risk areas are those in storm-prone and crime-ridden areas. Tornado Alley in the Midwest, frequent flooding on the Gulf Coast, and earthquake-prone western California are among them. High-risk areas include urban areas with a high number of break-ins. It takes more than just being in that area, however. Several claims must have been filed against the house in the past. Insurance companies use a database called CLUE to file and store all insurance claims. If the house you want to buy appears frequently in that database, finding homeowners insurance will be more difficult.

If you have filed multiple claims from multiple homes, it is you who is at risk, not the home. In this case, you will need to look into other options for home insurance because even a FAIR plan may refuse you if you are deemed high-risk.

What to Do if Your Home is Considered High-Risk

The FAIR plan is only used as a last resort. There are several options you should consider before applying to your state's FAIR plan.

Locate an Insurance Agent

Working with an insurance professional is your best bet for finding home insurance for a risky home. Insurance professionals have access to a plethora of resources that can be extremely beneficial when it comes to insuring your home. You may only be familiar with a few of the major insurers, despite the fact that there may be several alternative insurers in your area. An insurance agent can refer you to a company that you would never have considered but would be happy to insure your home. "Legacy" carriers such as State Farm, Allstate, and Farmers are so large and deal with so many less risky customers that they are unlikely to take on your risk. Local or specialty insurers may be more willing to participate.

Speak with Your Neighbors

If you don't want to talk to an insurance professional for financial reasons, or if you can't find one you trust, you might be able to help your own cause. Your first step should be to introduce yourself to your neighbors and inquire as to who they have insurance with. If they can find an insurance company for a home in the same area as yours, that company will most likely accept you as well. For insurers with a history or business in the area, a neighborhood or community association may be a good resource.

Negotiating with a Homeowners Insurance Company

If you get your foot in the door and start talking to homeowners insurance companies, there are a few things you can negotiate to make your house more insurable. For example, you could offer to pay a higher deductible, reducing the company's financial risk (since you would be less likely to file a claim unless there was a severe and costly disaster). You simply want to ensure that you can afford the deductible if the time comes.

There could also be parts of the house that are causing the insurance company to be concerned. You may be able to make it more insurable by elevating the foundation, improving the siding, upgrading to walls that collect less moisture, and so on. Of course, any home improvement will cost a lot of money, so only do them if you love the house and intend to stay there for a long time.

Finally, bundling is an excellent way to gain access to an insurance company. If you have a State Farm auto insurance policy, they are more likely to accept your home insurance policy as well. Even better, if you offer to transfer your auto insurance policy to State Farm or another company that combines home and auto insurance, they may be more willing to insure your high-risk home.

How to Sign Up for a FAIR Plan

If all of the above fails, the time has come to enroll in a FAIR plan, which begins with a phone call to your state's agency. The FAIR plan is saved for last because it is not a comprehensive policy in most states. A standard homeowners insurance policy covers 16 types of perils, your personal property, and liability; in some states, such as New Jersey, a FAIR plan will provide basic insurance against disasters caused by fires, windstorms, vandalism, and riot, as well as personal property. Each state's plan has its own set of rules and restrictions, and acceptance into your state's program is not guaranteed. The following are some general requirements for your home:

• Observance of local building codes
• Someone is living in the house.
• There are no open insurance claims against the house.
• Not owning a restricted dog Breed like Pitbulls and Rottweilers
• There is no need for an unsafe pool.

You should check with your state to see what else may disqualify you from receiving a FAIR plan. The majority of states' programs require you to apply through an insurance agent. You should be able to request an agent and have them fill out your application through the FAIR plan. You may also be required to demonstrate that you have already been denied by several home insurance companies. The links to each state's FAIR plan homepage are provided below. Arizona, Alaska, Utah, Idaho, and essentially the majority of states in the country's interior that do not experience tornadoes are notable states that do not have programs. Texas

How Much Does a Fair Plan Cover?

We discovered that most FAIR plans provide a maximum of $500,000 to $600,000 for dwelling coverage, i.e. only for the structure of the home. As previously stated, some states, such as New Jersey, provide $200,000 in personal property coverage. Some states, such as Ohio, offer two types of coverage: a basic "fire" policy and a more comprehensive homeowners policy that also protects your personal belongings.

How Much Does a FAIR Plan Cost?

It is difficult to say exactly because it varies by state, but you should not expect a significant discount from the going rates in your state. Because this is not a program designed to assist low-income earners in affording insurance, the pricing will generally reflect what you are paying for. A bare-bones policy will most likely cost the same as a bare-bones policy from a private insurance company. To get a good idea of how much homeowners insurance costs in your state, go here and then find your state, where we list prices for various companies.

What if You Are Ineligible for a FAIR Plan?

If everything else fails and you are unable to qualify for a FAIR Plan, your only options may be to live in the home uninsured, make major improvements, or forgo purchasing the home entirely. The first option should not be considered (and cannot be considered if you are financing the home), because if you live in a high-risk area and do not have insurance, you are asking for a large damage bill in the future. If you are unwilling to consider the third option, forging the home, you might as well consider the second option first and make the major improvements to the home. The major improvements will be costly, but if they will make your home insurable and you want it to be your home for years to come, they may be the best option. Just make sure to check with your insurance agent or multiple insurance companies to see if making those changes will get them to insure the home—sometimes the area is just too risky, and even the best repairs will not convince the company.