Which of the following statements about the Fair Plan (Fair Access to Insurance Requirements) in California is TRUE?
- AIt is mandatory for all California homeowners to purchase a policy through the Fair Plan.
- BIt is a government entity that competes directly with private insurers.
- CIt is an association of insurers created to provide basic property insurance to those unable to obtain it in the standard market.
- DIt provides comprehensive property insurance for all perils, including earthquake and flood.
Show answer & explanationAnswer & explanation
Correct answer: C. It is an association of insurers created to provide basic property insurance to those unable to obtain it in the standard market.
The California Fair Plan is an insurance pool comprised of all insurers licensed to write property insurance in California. Its purpose is to ensure that basic property insurance is available to property owners who are unable to obtain coverage in the voluntary market, often due to high-risk locations.
Why the other options are wrong
- A. It is not mandatory; it is a market of last resort for those who cannot obtain coverage elsewhere.
- B. It is an association of private insurers, not a government entity, and serves as a market of last resort, not a competitor.
- D. Fair Plan policies offer basic coverage and typically exclude perils like earthquake and flood, which require separate policies.
California Fair Plan
The California Fair Access to Insurance Requirements (FAIR) Plan is an insurance pool that provides basic property insurance to consumers who cannot obtain coverage in the voluntary insurance market. It is a 'market of last resort' for high-risk properties.
- Established by state law.
- All insurers writing property insurance in CA must participate.
- Offers basic property coverage (e.g., fire, extended coverage perils), not comprehensive.
- Does not cover earthquake or flood, which require separate policies.
Memory trick: Fair Plan: Last Resort, Basic Cover, Insurer Support.