What Is Personal Legal Insurance?
Personal legal insurance, also called “group legal services insurance” or “prepaid legal services,” is designed to make legal services more affordable. It’s not really insurance, however; it’s a discount plan.
- Personal legal insurance is a discount plan for legal services.
- Some employers offer the plan as an opt-in benefit.
- What's covered will vary by the company offering the service.
- There are restrictions, such as being limited to in-network attorneys or not covering advice on business matters.
- The plans are relatively inexpensive, but that must be balanced with the various limitations of the plan.
How Personal Legal Insurance Covers
Personal legal insurance companies differ somewhat in the coverage they offer. Further, if you get your personal legal insurance through your employer (many large companies offer it to their employees as an optional benefit), be aware that your employer can customize the coverage available to its employees. For these reasons, plan specifics will depend on what the insurance company offers and what your employer makes available. You can also purchase an individual plan on your own.
Personal legal insurance may entitle you to reduced fees for services the plan doesn’t cover when you use an in-network attorney. For example, you might get a discount of 25% or more on noncovered services. Some personal legal insurance plans offer access to related services, such as tax advice from tax professionals. And some plans will cover not just the employee, but also his or her spouse and dependents.
If you need to consult with an attorney in person, personal legal insurance will pay the full cost of the attorney’s hourly fees for your consultation and you won’t owe anything out of pocket. Unlike health insurance, there are no co-payments or deductibles. The insurance will also cover the cost of an attorney’s fees for preparing or reviewing documents such as advance healthcare directives and healthcare powers of attorney. The plan may also provide unlimited access to attorneys through a toll-free phone number you can call for help with a covered service.
If your employer offers personal legal insurance, you’ll have the opportunity to sign up when you’re hired, then again each year during open enrollment. After you’re signed up, you can cancel at any time, but you can only change your coverage during open enrollment. You’ll automatically remain enrolled each year unless you cancel. If your employer doesn’t offer personal legal insurance as a benefit, you can purchase an individual policy on your own. The plan coverage may not be as comprehensive as that offered through an employer.
The monthly cost of personal legal insurance will hardly dent your budget. For example, the state of California offers coverage for roughly $10 a month, while LegalZoom offers plans for a similar cost if you prepay for a year, otherwise, it's around $15 a month.
As with health insurance, you’ll have a limited number of providers to choose from under a personal legal insurance plan. You may have the option to use an attorney outside the network, but instead of the plan paying the attorney directly, you may have to pay upfront, then file a claim with the insurance company to get reimbursed.
The plan may pay your out-of-network attorney the amount it would normally pay an in-network attorney, and you’ll be responsible for any difference. You’ll need to make sure you understand the plan’s limits on out-of-network attorney fees so you don’t incur bills you can’t afford to pay.
While some plans advertise that participants get a discount on noncovered services, some attorneys will make up for the “discount” you’re supposed to be getting by charging a higher hourly fee to start with or marking up other services they bill you for. And even for covered services and in-network attorneys, you may still pay out of pocket for certain costs associated with the legal services you need, including document filing fees, court reporters’ fees, and expert witness fees.
Certain services are excluded completely, and you won’t receive any coverage for them at all. A plan offered through your employer will not help you sue your employer or defend yourself if your employer sues you. If you have a problem with workers’ compensation or unemployment compensation, you might not be able to turn to the plan’s legal services for help. It won’t help you go to small claims court or file a class-action lawsuit. And if you find yourself involved in a lawsuit that is covered by another insurance policy, like your homeowners or auto insurance, your personal legal insurance won’t apply.
Personal legal insurance also won’t cover advice on business matters. If you need an attorney to help you get a small business off the ground or to help you deal with a difficult tenant of a rental property you own, you’ll have to hire one on your own. You also can’t use personal legal insurance to file a frivolous lawsuit. Not surprisingly, you can’t use your personal legal insurance after you retire from the company that offers the plan or after you are fired. However, if you started working with an attorney through the plan before you retired or lost your job, your policy may cover the rest of that case. Other exclusions include matters involving foreign (non-U.S.) law and those involving other members of the plan group. In other words, you might not be able to use the plan to sue your coworker.
Limitations of Personal Legal Insurance
Further, personal legal insurance plans divide different types of legal services into different categories, and there may be limits on how much service the plan will cover in each category. For example, to use “preventive” legal services such as having an attorney review your will, the plan might cover one hour of service per calendar quarter.
Under some plans, you can only use each type of coverage once per year per policy. That means the plan might cover the cost of having an attorney prepare your will, but not your husband’s. Or, if you were charged with two misdemeanors in one year, your plan would only cover the attorney’s fee for your first misdemeanor.
Some plans also have waiting periods, meaning you’ll have to be enrolled in the plan for several months before you can use certain services. This waiting period is meant to protect against moral hazard, where people try to avoid signing up for insurance until they actually need to use it. However, some policies do not have any waiting period and even allow you to use the policy for a pre-existing legal problem, as long as you aren’t already working with another attorney. Other policies say that pre-existing circumstances may or may not be excluded depending on whether the participating law firm you choose wants to take on your case.
The comprehensiveness of a personal legal plan can vary significantly from one provider to the next. Make sure you read the fine print and understand what’s covered, what isn’t and where you could incur extra costs before you sign up. For example, the plan might cover the cost of an attorney’s hours spent in a trial, but not the hours spent preparing for your trial. Those hours would represent a significant expense that you’d have to pay out of pocket.