Attorneys are expensive – so expensive that you might not be able to afford one if you need one. Their services cost hundreds of dollars per hour; even preparing a simple will can cost $100 to $500. Personal legal insurance, also called “group legal services insurance” or “prepaid legal services,” is designed to solve this affordability problem. It’s not really insurance, however; it’s a discount plan. Here’s what you need to know about what these plans cover, what they don’t cover, what to look for in a plan, how to buy in and how much they cost.
What Personal Legal Insurance Covers
Most people think first of needing an attorney if they are sued or convicted of a crime, but your reason could be as ordinary as needing a will or a trust or buying or selling property. You could also require an attorney if you get divorced, seek sole custody of your child or decide to file for bankruptcy (see How To Hire A Bankruptcy Lawyer.) If you have trouble with your landlord, personal legal insurance can help in that situation, too.
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.
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.
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.
What's Not Covered
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 up front, 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. (See How Umbrella Insurance Works.)
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.
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 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.
How Good Are the Lawyers?
In addition to paying careful attention to what’s covered and what isn’t, look at the plan’s requirements for its in-network attorneys. You want access to experienced attorneys who graduated from accredited law schools and are currently licensed by the states where they practice. Before signing up, get a list of the plan’s participating attorneys, then search online for reviews of the participating law firms and attorneys in your area. There’s no sense in signing up for a plan that gives you access to professionals with poor reputations. Also check with your state bar association website to make sure the plan’s attorneys are in good standing. (For more information, see How To Pick The Right Lawyer.)
A good plan will include attorneys with a variety of specialties, just as your health insurance includes providers with different specialties. This way, you’ll have access to experts in various scenarios. A good plan will also have a broad network. Some plans have small attorney networks, with perhaps as few as one participating law firm per state. This might mean that you can only contact your attorney by phone or email because you don’t live anywhere near the office or that it’s difficult to get an appointment because every plan participant in your state is trying to work with the same law firm.
If English is not your preferred language, see whether the network includes attorneys who speak your language. Also look for a plan that will let you work with the same attorney repeatedly, so you can build a long-term relationship with one lawyer.
Ways to Buy Personal Legal Insurance
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.
What It Costs
The monthly cost of personal legal insurance will hardly dent your budget. Here are some sample monthly premiums for 2015.
– Employees of the state of California: $10.19/mo. individual, $17.74/mo. family
– MetLife’s Hyatt Legal Plans for employees: about $20 per month, including spouse and dependents
– LegalZoom’s individual plans: $9.99 per month if you prepay for one year, $11.99 per month if you prepay for six months. Otherwise, $14.99 per month. Includes spouse and dependents.
The Bottom Line
Personal legal insurance is inexpensive, and if you actually use it, it will easily pay for itself. Even if you aren’t sure if you have any legal needs, signing up for a plan so you can inexpensively meet with an attorney once a year can be a good idea. The attorney can help you identify areas of your life where you need better legal protection, such as creating a family trust or a power of attorney. He or she can also help you update previously created documents after a life change such as marriage, divorce or having a child.
However, these plans have significant limitations that mean you might not be getting as much coverage as you think, and you can easily meet basic legal needs like will preparation with inexpensive online services that charge a one-time fee. Finally, don’t assume that any personal legal insurance plan includes particular benefits or details; read the fine print before you sign up to see if the plan offers services that will be of value to you.