The California FAIR Plan covers a narrow slice of what a normal homeowners policy covers: fire, lightning, internal explosion, and sudden accidental smoke damage. It is a named-peril policy sold as the state’s insurer of last resort, and it leaves out water damage, theft, liability, and most of what people assume home insurance includes. Because the gaps are wide, most policyholders pair it with a separate Difference in Conditions policy to approximate standard coverage.
The Perils Covered by Default
A FAIR Plan dwelling fire policy pays only for damage caused by specific listed events, not all risks. The base perils are fire or lightning, internal explosion, and smoke damage that is sudden and accidental.
The smoke definition matters. To be covered, the smoke must be sudden and accidental, and either visible to the eye or detectable by smell. The policy excludes smoke from agricultural operations, industrial sources, and intentional fires such as fireplaces and barbecues.
A California Superior Court has ruled that the FAIR Plan’s approach to smoke, soot, and ash claims, including the requirement that damage be visible to the unaided eye or detectable by smell, was unlawful under the Insurance Code, and the FAIR Plan has indicated it is revising its policy language in response. Separately, the California Department of Insurance filed legal action in July 2025 alleging the plan used an arbitrary internal “permanent physical damage” standard to reject legitimate smoke claims from the January 2025 Los Angeles fires. If you have a smoke claim, the standard being applied to it is actively contested.
Optional Perils You Can Add
Several additional perils can be added for extra premium:
- Windstorm or hail, which covers exterior damage and covers interior damage only if wind or hail first opens a hole in the roof or wall.
- Explosion, a broader version that replaces the more limited internal-explosion coverage.
- Riot or civil commotion.
- Aircraft and vehicles, meaning damage from aircraft, spacecraft, or vehicles not owned by the policyholder or a resident of the home.
- Volcanic eruption, excluding earthquake-related tremors.
- Vandalism and malicious mischief, which excludes glass breakage, theft, and damage to homes vacant for more than 30 consecutive days.
The Four Coverage Categories and Their Limits
A FAIR Plan dwelling policy can include up to four main coverage categories, each activated by a selection in the policy declarations.
Coverage A — Dwelling covers the structure itself, with a maximum of $3 million per policyholder for residential properties.
Coverage B — Other Structures covers detached structures on the property, such as garages or sheds.
Coverage C — Personal Property covers belongings typical to a home, owned or used by the policyholder or resident family members, while on the insured property. Up to 10 percent of the Coverage C limit applies to covered property anywhere in the world. Condominium owners and tenants can also use up to 10 percent for improvements or alterations they paid for.
Coverage D — Fair Rental Value is where the FAIR Plan departs sharply from a standard homeowners policy. Instead of broad additional-living-expense coverage, it pays only the fair rental value of the property, essentially the cost to rent a comparable home. It does not cover meals, extra mileage, pet boarding, or furniture rentals. The limit is capped at 10 percent of the dwelling limit, with an optional upgrade to 20 percent.
Renters can obtain personal property coverage through the plan, and condominium unit owners can get both personal property and improvements coverage.
What the FAIR Plan Does Not Cover
The exclusions are the reason most policyholders need something more. The FAIR Plan explicitly does not cover:
- Water damage of any kind, including floods, surface water, waves, sewer or drain backup, and underground water.
- Earthquake and earth movement, including landslides, mudflow, and mine subsidence.
- Theft.
- Personal liability. There is no coverage if someone is injured on the property, no medical payments to others, and no coverage for damage to others’ property.
- Ordinance or law costs, meaning expenses from building code upgrades required during reconstruction, unless purchased separately.
- War, nuclear hazard, and intentional loss.
- Power failure, if the outage originates away from the insured property.
Certain property types are also excluded entirely: money, securities, animals, most motor vehicles, watercraft larger than rowboats or kayaks, electronic data and software (though blank media and retail software are covered), credit and gift cards, and business personal property.
How Claims Are Paid
By default, the FAIR Plan pays on an actual cash value basis. The payout reflects what the damaged property was worth at the time of the loss, after depreciation. For a total loss of the dwelling, that means the home’s fair market value before the fire. For partial losses and personal property, it means the cost to repair or replace minus a deduction for wear and tear.
You can pay extra for a dwelling replacement cost endorsement, which removes the depreciation deduction and pays current rebuilding costs. There is a condition: the home must be insured to at least 80 percent of its full replacement cost. If coverage falls below that threshold, the insurer pays only a proportional share of the loss rather than the full claim. Replacement cost coverage is not available for homes over 25 years old unless the roof has been replaced within the past 25 years.
For personal property, a separate replacement cost option can be selected in the declarations, overriding the default depreciation-based payout. The FAIR Plan does not independently estimate rebuild costs; that responsibility falls on the policyholder and their broker.
Why Most Policyholders Need a DIC Policy
Because the FAIR Plan covers so little beyond fire, most policyholders buy a Difference in Conditions policy to get protection comparable to a standard homeowners policy. A DIC policy wraps around the FAIR Plan and fills the specific gaps the FAIR Plan leaves open, primarily water damage, theft, and liability.
The FAIR Plan itself does not sell DIC policies. You buy them separately through an insurance broker or find a carrier on the California Department of Insurance’s list of companies offering DIC products. Roughly half of all FAIR Plan policyholders purchase one.
Combining a FAIR Plan policy with a DIC policy generally costs more than a single standard homeowners policy would. Compare the covered perils and exclusions in both policies carefully to make sure there are no unintended gaps between them. If the DIC policy contains a coinsurance clause, failing to insure to the required percentage of value could reduce the amount you recover after a loss.
Pending legislation could change this structure. AB 1680, the “Make It FAIR Act,” introduced in early 2026 by Assemblymember Lisa Calderon and sponsored by Insurance Commissioner Ricardo Lara, would require the FAIR Plan to offer comprehensive homeowners coverage, including water damage and liability, rather than forcing policyholders to buy separate DIC policies. The FAIR Plan has resisted expanding its coverage since at least 2019.
Mobile Homes, Condos, and Commercial Properties
Until recently, the FAIR Plan did not insure mobile homes at all. Senate Bill 525, signed on October 9, 2025, and effective January 1, 2026, requires the FAIR Plan to offer manufactured and mobile homeowners the same basic property insurance, including full replacement cost coverage, that it provides for standard residential dwellings. The law affects more than 500,000 mobile homes statewide.
The commercial fire policy covers business-owned buildings and business personal property, with the same base perils as the dwelling policy and optional extended coverage for windstorm, hail, smoke, aircraft or vehicle damage, riot, sinkhole collapse, volcanic action, vandalism, and sprinkler leakage. It adds coverage for debris removal (up to 25 percent of the loss amount), preservation of property during emergency relocation (up to 10 days), fire department service charges (up to $1,000), and pollutant cleanup (up to $10,000 per premises per year). Eligible properties include apartment buildings with five or more units, retail shops, manufacturing facilities, office buildings, buildings under construction, and farms and wineries, though crops and livestock are not covered. In March 2025, Commissioner Lara approved an expansion of commercial coverage limits to $20 million per building and $100 million per location.
Earthquake Coverage Is Separate
Earthquake damage is excluded from the FAIR Plan policy, but the plan facilitates earthquake coverage through the California Earthquake Authority. You must already have an active FAIR Plan dwelling fire policy to qualify. The CEA policy is a separate policy covering residential dwellings, condominiums, renters’ belongings, and manufactured or mobile homes. Deductibles typically range from 5 percent to 25 percent of the dwelling coverage, with a minimum 15 percent deductible for homes valued over $1 million or older homes without verified seismic retrofitting.