Legal stuff happens. You might not expect to need a world-class criminal defense lawyer in your lifetime — and you might hope to never need a quality divorce lawyer.
Dana@thepennyhoarder.com (Dana Sitar)
March 2, 2021
But most adults incur smaller, less headline-grabbing legal expenses every year: We sign contracts, write a will or dispute traffic tickets.
We may even run into unexpected legal disputes that’ll never make it into a “Law & Order” script, like The Case of the Home Builder Who Misses Deadlines. Or, you know, bankruptcy or unfair landlords.
These events have an unwelcome impact on our wallets, too. So, as is the case for just about any unexpected potential expense: There’s insurance for that.
This guide will tell you everything you need to know about legal insurance, what it covers, whether it’s worth it, how to get it and alternatives to consider before signing up.
What Is Legal Insurance?
Legal insurance covers unforeseen expenses related to a legal case, including attorney fees, court fees and other related expenses.
This type of insurance is known by many names; these all refer to the same class of insurance product:
- Legal expenses insurance
- Personal legal insurance
- Legal plan
- Prepaid legal plans
- Legal protection insurance
- Group legal services insurance (if the plan is through an employer or association)
Legal insurance is not the same thing as the liability insurance you’d buy as a business owner or the coverage included with home insurance or vehicle insurance.
Liability insurance covers claims you owe in case you’re responsible for some kind of damage to a person or property, like medical bills. Legal insurance is designed solely to cover fees for legal services.
How Does a Legal Insurance Plan Work?
How your legal plan works depends on the policies of your insurance provider.
Depending on your policy, you might receive your coverage in the form of straight-up payment (as with health insurance), reimbursement (as with most pet insurance) or as a discount on legal services.
Some legal insurance providers even provide services themselves — that’s usually in the form of a law firm or legal services company offering prepaid legal plans.
Most legal plans come with an annual premium or semi-annual premium and cost around $100 to $300 per year.
An employer, union or other membership association might offer a group legal plan as part of your benefits package, similar to health or disability insurance. In that case, how much you pay depends on how much of the premium your employer or association covers.
When you need legal services, you can tap into attorneys in your insurance network for advice and representation. Some things you’ll encounter:
- Provider network: You’ll deal with a limited network of legal services providers. This might be limited to the company that provides the prepaid plan, or it might be a covered network of attorneys participating in your plan, like you have with health insurance.
- Financial benefits: Your plan might include full coverage for certain services, special rates for others and set discounts for yet others. Get familiar with the policy to understand your options before enlisting legal help.
- Out-of-pocket costs: Depending on your policy, you may be responsible for some out-of-pocket costs, like document filing fees or court reporters’ fees.
- Limitations and exclusions in coverage: Most policies exclude at least some areas of legal services, so check yours to make sure it covers what you’re most at risk of encountering. For example, if you’re married or expect to be, look for a plan that covers family issues like child custody and divorce. If you’re a homeowner or have significant assets, look for estate planning.
What’s Covered & What’s Not
What your legal insurance covers depends on the terms of your policy, so get familiar with it before buying in.
Legal insurance plans typically offer coverage for the cost of consultations, advice, legal assistance and representation, and preparation of legal documents. They cover matters like:
- Estate planning
- Will and trust
- Home buying
- Home-related contractor disputes
- Power of attorney
- Tenants’ rights concerns
- Marriage and divorce
- Adoption
- Child custody and child support
- Bankruptcy
- Debt refinancing and debt collection issues
- Traffic tickets
- Financial contracts and legal agreements
- Lawsuits
- Tax advice
- Employment disputes
- Employment agreements
Note that an employer-sponsored plan probably won’t cover disputes with your employer (though a union plan probably will).
Pro Tip
Legal insurance plans don’t typically cover criminal defense.
Sometimes legal insurance coverage is included or available as an add-on with another insurance policy, like homeowners, renters or auto insurance.
In that case, it most likely only covers legal matters related to whatever the main policy covers. For example, a legal insurance add-on to homeowners insurance likely covers things like contractor disputes, but not divorce or bankruptcy.
You can’t typically get coverage for something that’s already happening — say, you’re in the middle of an adoption and realize the legal costs too late. But legal insurance often covers unsurprising expenses you can expect to incur in the future, like estate planning and contracts.
Is Legal Insurance Worth Having?
Like any insurance, we can’t say for sure whether this is a worthy expense for you. That depends on your circumstances and needs.
Consider this: The average American spends around $120 to $160 in legal fees per year, according to a Statista report.
The decision to buy insurance or not is always a gamble. If you don’t buy it, you’re betting on not incurring costs greater than the premiums you’d have paid. If you do buy it, the insurance company is betting on you not incurring costs greater than the premiums you pay.
Some benefits of having legal insurance include:
- Peace of mind. As with any insurance, having it might simply relieve some stress. You know you can pop in and get services when you need them, so the cost of premiums could be worth it even if you never use it.
- Employer benefit. If you can get legal insurance with the premiums covered by your employer, you don’t take on the risk signing up.
- Spread out the costs. Even if a legal plan doesn’t save you money in the long run, you could benefit from having your costs spread out. Paying $100 to $300 per year might be more feasible for you than paying $5,000 at once when a case comes up.
Some drawbacks of buying legal insurance include:
- Low-cost services. Many of the cases typical legal insurance covers are relatively low-cost services, like drawing up a will or disputing a traffic ticket. You could spend thousands of dollars over your lifetime on premiums and only ever benefit from legal services that would have cost you a few hundred bucks.
- Capped benefits. Even when higher cost services are covered under a plan, the benefit is often a discount, rather than full coverage.
- Limited network. Even if you encounter a higher-cost scenario, like a complicated divorce or an employment dispute, you might not have access to high-quality legal representation through a network attorney.
How to Get Legal Insurance
Want that coverage?
You can find legal insurance plans through:
- Your employer: Some companies include legal insurance as an optional benefit and cover some or all of the premiums for you and your family.
- A union or trade association: Instead of directly from an employer, you might have access to a group legal plan through a union or association you’re a member of.
- Legal services companies: The most common place to buy prepaid legal plans is through online legal services companies, like LegalZoom or Rocket Lawyer.
- Insurance brokers: Despite the name, insurance providers themselves don’t typically underwrite legal insurance plans. But some insurance brokers (especially online) can hook you up with legal insurance through partnerships with legal services providers.
FROM THE INSURANCE FORUM
FAQs
What is the purpose of legal expenses insurance? ›
Customers buy legal expenses insurance to cover legal costs they might incur while pursuing disputes about: personal injury. contracts for goods or services.
What is motor legal protection and do I need it? ›What is motor legal protection? Motor legal protection – sometimes known as car insurance legal cover – can cover legal expenses, up to an agreed limit, which result from a car accident that wasn't your fault. It's usually offered as an optional add-on to car insurance policies, although some include it as standard.
Do I need legal cover with my motor insurance? ›Car insurance legal cover is designed to pay for your legal costs and uninsured losses if you are involved in a car accident that wasn't your fault. Legal cover (sometimes referred to as “legal expenses”) is not a legal requirement, but could ultimately save you money in the long run.
What is legal expenses cover on home insurance? ›Legal expenses cover, also known as family legal protection or Legal expense insurance (LEI), covers the cost of legal advice and representation for a range of common disputes or claims that may be made against you. This could include: Someone making a claim against you after injuring themselves in your home.
Do I need legal expenses cover on public liability insurance? ›Does public liability insurance cover legal fees? Your policy will usually cover the cost of legal fees that are associated with defending a claim brought against you. The precise details of what your insurance will cover depends on the individual terms of your policy.
What are legal expenses in business? ›Business (or commercial) legal expenses is typically designed to help you to get expert legal advice with problems such as employment tribunals or commercial contract disputes, it could also provide cover for legal representation and expenses in the event of a claim.
What legal expenses mean? ›Legal Expenses means the fees, costs and expenses of any kind incurred by any Person indemnified herein and its counsel in investigating, preparing for, defending against or providing evidence, producing documents or taking other action with respect to any threatened or asserted Claim.
Is motor legal protection the same as legal expenses? ›So what's Motor Legal Protection? Motor Legal Protection is like MLEI, but by comparison the level of cover is more comprehensive. Unlike a Motor legal Expenses policy, it often includes Motor Prosecution Defence and vehicle hire after a non-fault accident at no additional expense.
What is the legal minimum insurance cover? ›Explanation: The minimum insurance required by law is third-party cover. This covers your liability to others involved in a collision but not damage to your vehicle. Basic third-party insurance also won't cover theft or fire damage.
Is no claims discount worth it? ›A no claims discount (NCD) can play an important part in lowering your annual insurance premium. If you do not make a claim on your car insurance, then your insurer is not required to pay out. By default, this implies you are a safer driver and therefore cheaper to cover.
What is uninsured driver promise? ›
It's a guarantee that your no claims discount will be reinstated, and your excess will be reimbursed if you're involved in an accident with an uninsured driver. Not all insurance providers offer this, so if it's something you want, check it's included before deciding on a policy.
What is protected no claims discount? ›No claim discount (NCD) protection is an optional cover which protects your NCD from one "at fault" claim every year. It does not protect the overall price of your insurance policy, but does guarantee that your premium won't increase next year as a result of a claim.
What is after the event legal expenses insurance? ›What is After the Event (ATE) insurance? ATE insurance, also known as litigation insurance or legal expenses insurance, provides protection against the financial exposure of having to pay an opponent's legal costs if the insured is unsuccessful in their legal proceedings.
Is home insurance worth having? ›It is a good idea to take out home contents insurance to cover your possessions against fire, theft and other risks, such as accidental damage. If something happens to destroy or damage your possessions, it can cost a lot of money to replace them items, some of which may be essential.
What does family legal protection cover mean? ›Family Legal Protection covers the following:
Contract dispute for buying or selling your home. Faulty goods or services you've bought – including holiday packages. Pursuing neighbour disputes – including nuisance, trespass and damage to your home. Motoring prosecution. Inheritance dispute.
Public liability insurance covers the cost of claims made by members of the public for incidents that occur in connection with your business activities. Public liability insurance covers the cost of compensation for: personal injuries. loss of or damage to property.
What is before the event legal expenses insurance? ›Covers home owners and their immediate family for the cost of bringing a legal action against a range of disputes relating to employment, property, contract and injury. It also includes access to legal advice and online legal documents.
Does public liability insurance cover broken windows? ›Things that are not generally covered by your policy would include: scratching a window. breaking a window. breaking glass in a door.
What are examples of legal expenses? ›- Copies and faxes. Many firms track the number of the copies and faxes and charge per page to the client's case. ...
- Postage. ...
- Courier fees. ...
- Expert or consultant fees. ...
- Filing fees. ...
- Court reporter costs. ...
- Witness subpoena fees. ...
- Service of process fees.
legal expenses are the expenses to be paid by the firm so these expenses will be debited as per the rule of nominal account because all the expenses and losses are credited.
What type of expense is legal fees? ›
Legal fees that are deductible
Fees that are ordinary and necessary expenses directly related to operating your business (should be entered on Form 1040, Schedule C). Fees for resolving tax issues, advice or preparation of tax forms related to your business (should be included on Form 1040, Schedule C).
Usually, you can only expect to recover your legal costs if you have actually begun the court process. There are some exceptions to this but usually you will not recover legal costs if court proceedings aren't issued.
Is legal expense an asset? ›As per the accounting rules and regulations, all expenses get debited in the respected expense accounts. Other options are not correct because legal expenses are not an asset, for example, land, Liabilities- Loan, Revenue- Income.
Where does legal expenses go in final accounts? ›Legal expenses incurred by banks in respect of suit-filed accounts should be debited to the profit and loss account at the time of incurrence. For the purpose of monitoring the recovery of such expenses from the borrowers, the banks may keep a memorandum control account.
What is personal accident cover? ›Personal accident cover is a part of a car insurance policy that compensates you or your family for injuries or death caused by a car accident. If an accident isn't your fault, the at-fault person's insurer will pay out for any personal injury claims.
What is a comprehensive loss in insurance? ›Comprehensive insurance is a coverage that helps pay to replace or repair your vehicle if it's stolen or damaged in an incident that's not a collision. Comprehensive, sometimes called "other than collision" coverage, typically covers damage from fire, vandalism or falling objects (like a tree or hail).
What is break down cover? ›Breakdown cover is insurance that means you can get help if your vehicle breaks down. For example, if you get a flat tyre or your engine conks out, you can call for roadside assistance. When your mechanic arrives, they'll try to fix your vehicle there and then.
Why do you need insurance? ›Insurance is designed to financially protect you and provide you the comfort of knowing you and your family have something to fall back on in case you face a loss. And while you may only buy insurance because you're required to have it, insurance can be a necessity for other reasons, too.
Is liability insurance required by law? ›Most employers are required by the law to insure against liability for injury or disease to their employees arising out of their employment.
What is level of cover in insurance? ›The level of cover is one of the most important parts of your insurance policy. It determines how much protection you have in the event of an accident, as well as what you are and are not covered for.
How many years no claims before you can protect it? ›
Normally you need to have at least five years No Claims Discount to qualify for No Claims Protection, however we have three insurers who do offer this benefit on a lower amount of No Claims Discount.
How many years no claims do you lose after an accident? ›Each insurer will have their own rules about how long you have had a no-claims bonus for. Most will accept a no-claims bonus that's less than 2 years old, but others may accept less than 3 years. However, they may only accept 3 years if they were the last insurer.
How many years no claims makes a difference? ›If you make one claim on your insurance and your insurance provider pays out, your no claims discount is typically reduced by two or three years. It could be further reduced if you make two or more claims.
What happens if an uninsured driver hits you? ›You should still get in touch with the police and your insurance company. The MIB is there to handle claims where there's an untraceable driver. You can make a claim against an untraceable driver on the MIB website. You'll need to make any claims for property damage within nine months of the accident.
What happens if I have a car accident without insurance? ›Having an accident whilst uninsured
If you cause an accident whilst driving without insurance, you will have to pay for any of your own repairs, and potentially repairs for others involved out of your own pocket. You will also face a penalty for driving without insurance.
If you have been unfortunate enough to be involved in an accident with an uninsured driver, can you claim compensation? Thankfully, yes you can.
How do I get proof of my no claims discount? ›Some new providers will ask your old provider for the proof of no-claims discount themselves – they'll let you know if they do. If not, you may find the details on your renewal letter or on the cancellation notice you'll receive if you're switching. If not, contact your provider and ask them to send you the proof.
How do I get proof of no claims discount? ›There are three main forms of proof: The renewal invite from your current or previous insurer will state the number of years you've enjoyed a no claims bonus. A cancellation letter from your previous insurer, as long as it states your no claim bonus. A letter from your previous insurer confirming your no claims bonus.
How much does 1 years no claims reduce insurance? ›All insurance companies have their own no claims discount scale, but a typical example might be: 30% discount after 1 year's claim-free insurance. 40% discount after 2 years. 50% discount after 3 years.
Is after the event insurance worth it? ›After the event insurance (ATE) can prove useful because it can cover any costs that can arise during the claim, such as costs for medical reports. With ATE, you will be able to recover costs such as these even if the claim fails.
Can insurance take you to court? ›
Most cases do not get to Court because an insurance company will make an offer of compensation before it does get to Court. Most cases will settle before that point. Therefore the answer to this question is that it is very unlikely that you will have to go to Court for your accident claim.
What is an ATE premium? ›An ATE policy is a policy of insurance taken out to cover the risk of losing your case and having to pay the opponent's costs. The ATE premium is the cost of that policy. In personal injury cases the policy is usually taken out on your behalf by the solicitor without you having any direct contact with the insurer.
Why has house insurance gone up so much in 2022? ›New FCA rules that came into force in January 2022 to tackle the practice of 'price walking' have instigated the biggest monthly jump in home and motor insurance premiums in over eight years, according to market insight firm Consumer Intelligence.
Does homeowners cover TV damage? ›Most home insurance policies will pay out for damage to home entertainment equipment like televisions or stereos.
What is the most important part of homeowners insurance? ›The most important part of homeowners insurance is the level of coverage. Avoid paying for more than you need. Here are the most common levels of coverage: HO-2 – Broad policy that protects against 16 perils that are named in the policy.
Why does a family need a Legal Protection? ›Family Legal Protection will protect you and your family if you find yourselves in a difficult situation. Issues such as property or employment disputes, personal injury and personal identity theft are all covered, as long as the event happens after your policy has started.
What is the meaning of Legal Protection? ›countable noun [usually plural] Protections are laws and other official measures intended to protect people's rights and freedoms.
Can you buy legal cover separately? ›Customers can buy legal expenses insurance as a standalone policy or as an optional 'add-on' to other policies. When customers take out a motor insurance policy for example, they're often offered the option of legal expenses insurance to fund the cost of taking legal action and recover the uninsured losses.
What is legal expense insurance UK? ›Typically, legal expenses insurance provides cover for common issues such as: Unfair dismissal, or discrimination at work; Injury from an accident that was not your fault; or. Disputes involving faulty goods or services.
What is the legal minimum insurance cover? ›Explanation: The minimum insurance required by law is third-party cover. This covers your liability to others involved in a collision but not damage to your vehicle. Basic third-party insurance also won't cover theft or fire damage.
What is after the event legal expenses insurance? ›
What is After the Event (ATE) insurance? ATE insurance, also known as litigation insurance or legal expenses insurance, provides protection against the financial exposure of having to pay an opponent's legal costs if the insured is unsuccessful in their legal proceedings.
What is Lei cover? ›Business legal expense insurance (LEI), is a form of legal protection insurance (LPI). LEI coverage protects a company from the cost of defending itself in the event someone brings a lawsuit against them.
What is before the event legal expenses insurance? ›Covers home owners and their immediate family for the cost of bringing a legal action against a range of disputes relating to employment, property, contract and injury. It also includes access to legal advice and online legal documents.
What are legal expenses accounting? ›Legal expenses account are the indirect expenses of a business and hence, they are classified as nominal accounts.
Is after the event insurance worth it? ›After the event insurance (ATE) can prove useful because it can cover any costs that can arise during the claim, such as costs for medical reports. With ATE, you will be able to recover costs such as these even if the claim fails.
Why do you need insurance? ›Insurance is designed to financially protect you and provide you the comfort of knowing you and your family have something to fall back on in case you face a loss. And while you may only buy insurance because you're required to have it, insurance can be a necessity for other reasons, too.
Is liability insurance required by law? ›Most employers are required by the law to insure against liability for injury or disease to their employees arising out of their employment.
What is level of cover in insurance? ›The level of cover is one of the most important parts of your insurance policy. It determines how much protection you have in the event of an accident, as well as what you are and are not covered for.
What does ate mean in legal terms? ›After The Event insurance or 'ATE' insurance, often referred to as litigation insurance, is a bespoke policy put in place once a legal dispute has arisen to the cover the costs associated with the legal action or dispute.
Can insurance take you to court? ›Most cases do not get to Court because an insurance company will make an offer of compensation before it does get to Court. Most cases will settle before that point. Therefore the answer to this question is that it is very unlikely that you will have to go to Court for your accident claim.
What is an ATE premium? ›
An ATE policy is a policy of insurance taken out to cover the risk of losing your case and having to pay the opponent's costs. The ATE premium is the cost of that policy. In personal injury cases the policy is usually taken out on your behalf by the solicitor without you having any direct contact with the insurer.
What does family legal protection cover mean? ›Family Legal Protection covers the following:
Contract dispute for buying or selling your home. Faulty goods or services you've bought – including holiday packages. Pursuing neighbour disputes – including nuisance, trespass and damage to your home. Motoring prosecution. Inheritance dispute.
Legal Care Plus is intended to provide cover for the costs of: a. Making a claim for uninsured losses against a person who is at fault for an accident or road traffic collision; b. Defending a motoring prosecution in a magistrates' court; c.
What is a bagatelle payment? ›bagatelle noun (SMALL AMOUNT)
something, especially an amount of money, that is small and not important: A thousand pounds is a mere bagatelle to him.