Tornado Insurance in Alabama

Before

After

Sunday’s (6/26/2011) Birmingham News has several well composed stories featuring homeowners in Cahaba Heights and other Alabama towns who are having difficulty obtaining enough insurance money to repair of rebuild their homes to the necessary codes and updates required by building codes in our state.

Insurance companies initialize procedures to payoff insureds after a large scale loss situation. These procedures implement reduced payment formulas known as catastrophe payments. Catastrophe payments are released in the hope that the recipient will accept the amount tendered as final payment. What owners don’t understand is that the too good to be true cost per square foot construction amount they heard that their brother-in-law gets from his best buddy the builder isn’t going to come close to the expenses required to demolish, update, repair or rebuild a house with substantial damage. There are always incidentals and upgrades because of available materials and methods or construction techniques that have changed through the years. Often the old construction techniques used cost more to replicate than the new systems commonly used today.

After the tornado of 1998 in Oak Grove and Cordova, I was working with owners to document their homes as they existed before the tornado. Owners who were getting checks from their insurance companies to settle the expenses that were fractional of the real costs required to finish the job. One owner had a home with a full basement which opened on the end for a garage. The main level floor framing was still partially attached to the foundation; there were a couple of interior walls still in place, but the roof and exterior walls were destroyed and spread across the landscape. The owner had found their photographs which showed their home before the disaster.

The insurance company was offering them a check for under $100K. Their home was about 2400 sq. ft. and construction costs were about $125 per sq. ft. for semi custom homes with nice finish materials, like real brick, and wood for the exterior trim instead of masonite or vinyl or the latest best thing pushed by Home Depot.

If you have to rebuild your home, you aren’t going to build to the specs a doublewide manufacturer uses, you’re going to build it the way you want it.

This home was measured and blueprinted. After the plans were finished, bids were obtained from 3 home building contractors, who obtained bids from every subcontractor. The new version of the old home was going to cost over $300K to build! The plans served as the tangible standard all the contractors were to bid by. This simple action eliminated most of the variables in the building process. Armed with this information the owner was able to re-negotiate the settlement for the reconstruction and contents for a satisfactory amount.

The Birmingham News mentioned on several occasions the insured might need to obtain outside professional assistance to substantiate the degree of damage or costs required to rebuild. Many insureds think they are in the insurance company’s favor because they have paid their policy all those years. Proper compensation for the insured owner comes when the loss is made tangible and substantiates the claim. Home building costs are volatile and subject to fluctuations from every supplier, including the brother-in-law’s builder buddy when he learns your home wasn’t like the last one he built.