Can you explain what a FAIR plan is?
UPDATED: Feb 3, 2012
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Asked February 3, 2012
In many locations, the threat of one or more named perils makes it prohibitively expensive for insurance companies to offer coverage for those risks. However, since mortgage companies require your home to be insured as a condition of the mortgage, it is imperative that you have access to insurance. Because of this apparent catch-22, states have implemented the Fair Access to Insurance Requirements plan, known simply as the FAIR plan.
FAIR plans are fairly simple. In order for an insurance company to sell homeowners insurance in a state, the company must contribute to the FAIR plan pool. In this way, all insurers share equally in the cost burden that can materialize if, for instance, a flood strikes. The idea is that areas which are high risk for one or more perils will still have the necessary coverage available to homeowners who cannot get the coverage through traditional channels. Similarly, no single company is bankrupted by high claims after the disaster strikes, which means the FAIR plan is fair for everyone, homeowners and insurance companies alike.
FAIR plans are not intended to replace your regular homeowners policy. The plan only covers the perils that specifically named in the plan, typically floods, earthquakes, and other disasters which have the potential to devastate entire communities. Before you can purchase a FAIR plan, you should search through traditional insurance companies as well as high risk companies to find out whether the coverage you need is available without using the FAIR plan. If you cannot get the coverage elsewhere, then you will need FAIR coverage as well as your regular homeowners policy.
To find out more about FAIR plans, contact your state insurance department. This is the agency which monitors insurance in each state, and the organization responsible for making FAIR available and checking to make sure that it is being properly used. Since insurance is regulated on a state by state basis, each state will have different regulations for using FAIR, but all states will require you to seek coverage through traditional channels before you can get FAIR coverage.
Answered February 3, 2012 by Anonymous