What is Legal Insurance
Before we dive into the more detailed questions around when and why you might want to consider legal insurance, it is important to first understand what legal insurance actually is. Legal insurance is generally a policy, or a policy and service combination offered through a broker or other type of insurance agent, that insures the ultimate cost of certain legal services, or the ability to use certain legal forms. Typically , the way it works is that the insurance provider makes a list of Attorneys and/or forms that they will cover, that are set prices. If you need anything outside of these set prices you are responsible to pay the difference or find a different provider depending on the type of policy. This means that, for example, if you are willing to pay a bit of your time and a small amount (perhaps $20-$50) for an uncontested name change or will with a certified attorney you can save literally hundreds of dollars!
Different Types of Legal Insurance Policies
Legal insurance plans can generally be broken down into three main categories, each designed to meet the unique needs of individuals, families, and businesses.
Individual and Family Plans
Individual and family legal expense plans are typically offered by membership organizations and are intended to provide covered billable services by participating attorneys at pre-negotiated fees. Enrollment is performed on an individual or family basis to become members of the plan.
Although these plans may offer coverage with a low monthly premium, they often cover only pre-negotiated fees. Therefore, it is important to fully understand how much an attorney may expect to be compensated for legal services.
Business Plans
Business legal expense plans are contracts that are issued to businesses to cover certain costs that may occur as a result of a legal claim. These plans tend to cover mostly business-related claims, such as employment law, real estate, contract disputes, and property matters. Many plans exclude certain claims, including those brought against directors, officers, and shareholders.
At the time of enrollment, businesses are offered a choice of the deductible and policy limits. The premium a business pays for its legal expense policy will be impacted by the level of optional coverage elected at the time of enrollment.
Prepaid Legal Plans
Prepaid legal plans function in a different manner than traditional insurance plans. With prepaid legal plans, coverage is usually provided at a flat monthly premium. These plans are designed to provide access to qualified attorneys at virtually no cost to the plan member. They may not provide coverage for the full fee for the representation of any legal matter. Some legal plans allow members to obtain a variety of legal services at little or no out-of-pocket cost. Members may also be required to pay a deductible or co-payment.
How Legal Insurance Functions
Understanding how legal insurance works is integral to ensuring you maximize the service.
Legal insurance is purchased by an employer or group because it is less expensive than other types of coverage. Everyone who purchases coverage pays for the total premium of the group and the individual contributions are generally less than if a person were to purchase an individual legal advice plan. Plans can also offer first dollar coverage for the first few hours of consultation with a lawyer. The coverage is usually limited to a dollar amount for the insured’s lifetime rather than a yearly limit.
One drawback to purchasing legal insurance is that the group may not be able to control costs. The cost of premiums increases each year based on the claims experience of the group. When there are a large number of claims, the premiums increase significantly the following year. If an individual is covered, then the coverage may end after one year or the cost of premiums may increase significantly after claims have been reported and paid.
The premiums charged to the group for legal insurance are generally less than for an individual or family legal plan. However, that does not mean that the insurance will cover everything. Some incidents may not be covered because they are excluded under the policy. In addition, under legal insurance, the group may be limited to certain providers and it may not be as easy to select your own provider.
Legal insurance is intended to cover the cost of lawyer’s fees for consultations and other work performed on the client’s behalf. In certain situations, an insured may not be satisfied with the service provided by a lawyer under the policy. At that point, the insured’s right to sue the law firm may be considerably less than if they were a client of the firm or were to sue the lawyer in a personal capacity.
When a client seeks legal advice from a lawyer, whether they are through legal aid or a legal advice plan or legal insurance, the client directs the lawyer on how to proceed with the matter. The client requests advice or representation and the lawyer provides a bill for services. In many cases a lawyer provides legal advice alone without acting on behalf of the client. For example, if a client was seeking help with completing their tax return, the lawyer would provide legal advice and assistance with completing the form but would not submit it to Canada Revenue Agency on behalf of the client.
If the client seeks advice and representation in a matter, the lawyer then performs legal services on behalf of the client. This can include drafting a formal letter of demand to the other party, negotiating a settlement or commencing a lawsuit.
In each instance, the lawyer provides advice and/or performs actions on behalf of the client. As an insured with legal insurance, the insured is the client of the insurer when they obtain legal advice from a firm or its members. In contrast, when a client retains a law firm without first being covered by legal insurance, then they are an individual client of the firm and the firm is representing the client and is accountable to the client.
Advantages of Legal Insurance
The most obvious practical application of legal insurance is the cost savings associated with retaining a lawyer. It is definitely cheaper to pay an insured attorney an hourly rate or a flat fee than to retain an uninsured attorney. Of course, the chances are that you will only need an insured attorney once in a while; nevertheless, the average savings for legal insurance members can easily add up to thousands of dollars each year.
Freedom to Choose Your Attorney
Because of the nature of legal insurance, members are free to choose their attorney from a directory of experienced attorneys who specialize in the areas of law in which the member has a need. Members are able to get the best representation available regardless of whether they can afford to pay the high hourly fees that attorneys typically charge. For example, an attorney that specializes in some area of law may charge $400 per hour but not all of it is paid out of pocket by the legal insurance member. Instead, the legal insurance company directly pays the attorney. While no insurance company will pay 100% of billed hours in litigation, most legal insurance companies will limit the amount to be billed to insurance members to a maximum of $200 to $300 per hour. The member is then able to avoid the other half of the attorney’s hourly rate. Therefore, members end up paying anywhere from $200 to $300 per hour for services rendered by their attorney. When the process reaches either arbitration or trial the member does not have to incur the additional costs associated with hiring an attorney to represent him or her.
To illustrate this example further, the member’s attorney and the opposing attorney enter settlement negotiations. The member’s attorney thinks that a reasonable settlement offer is $50,000. Now the member’s attorney is concerned that his or her client will not accept the offer. The member may be intimidated by the prospect of having to settle for what may seem a low offer. After all, if the member rejects the offer and the case goes to court he or she will be partially responsible for the attorney’s bill. As a result, the member will generally settle for less than he or she thinks the case is worth. On the other hand, the attorney may feel he or she could have gotten the opposing attorney to agree to a settlement of $100,000 had the member been willing to pay $400 per hour to continue pursuing the litigation. Therefore, the member, the attorney, and even the insurance company agree to accept a settlement of $75,000 and distribution of those funds following payment of costs. Each party is the winner. The member has received a fair settlement along with the emotional comfort of knowing that he or she did not have to pay for the attorney’s bill. The attorney has earned the member’s loyalty and gotten the insurance company to pay the remainder of his or her bill. The insurance company has saved money even though it has paid the member a settlement well above the applicable insurance limits. The member will likely see the benefit of this in future premium reductions.
Common Legal Issues Covered
Common types of legal issues typically covered by legal insurance plans include contract disputes, family law matters, and criminal defense. For example, an insured may use their legal plan to dispute a breach of contract claim in business or have their legal plan cover a divorce proceeding involving child custody and support issues.
Depending on the plan purchased, legal insurance plans may also cover other areas of the law such as criminal defense, personal injury claims, and traffic violations. An example of each scenario may help illustrate the general scope of coverage.
Criminal defense claims may arise from a DUI arrest. An insured can simply hand their legal plan card to their panel lawyer and provide documentation requested by the plan attorney. In contrast , without a legal plan, the cost of a criminal defense for a DUI arrest may be several thousand dollars out of the insured’s own pocket.
Personal injury claims may arise from a motor vehicle accident in which the insured is injured.
Traffic violations may arise when the insured is pulled over for speeding. Through their legal plan, the insured can receive assistance from their legal plan lawyer and will not have to bear the costs out of their own pockets.
Clearly, the types of coverage offered by legal insurance plans vary by plan.
Limitations of Legal Insurance Policies
As with all insurance products, legal insurance policies contain limitations and exclusions that may prevent coverage in certain situations. At the outset, it is important to note that policy terms vary between insurers and jurisdictions; even within a province or territory, coverages and exclusions may be different between insurers. It is therefore important to review your policy carefully for any limitations and exclusions, and to obtain independent legal advice where necessary.
Below is a non-exhaustive list of coverage typical of most policies but which may not exist in your policy:
- No coverage where service has already been provided: Policies generally exclude coverage for legal matters where a lawyer has already been retained to provide the service that is being claimed.
- Current or prior claims: Generally coverage will not be provided where a problem had started before the policy’s coverage period or where you knew or ought reasonably to have known of a problem before obtaining a policy.
- Disputes with your insurer or their agents: Policies typically do not respond to disputes with the insurer about coverage or claims handling or other complaints against the insurer.
- Damages: Policies usually exclude coverage for punitive, indirect, multiple and other consequential damages. They may also exclude coverage for business losses or losses not arising from a breach of law.
- Coverage relating to money, professional fees, bank loans, real estate or tax advice: Policies may exclude coverage for issues relating to mortgages, loans, securities, negotiable instruments, credit or banking (e.g. borrowing or lending, repossession, foreclosure, lien priority etc.). Policies may also exclude coverage for issues such as real estate commissions, business contracts or disputes, income tax, GST, PST and others. Disputes between lawyers are also typically excluded from coverage.
- Arbitrations and mediations: Most policies exclude coverage for arbitrations and mediations.
- Non-arising legal issues: Professional negligence arising from a breach of law where you were not acting in the course of your professional duties may be excluded from coverage.
- Professional negligence itself: Some policies do not cover professional negligence or errors and omissions in the course of carrying out one’s profession, except for determining one’s legal rights.
- Criminal charges: Certain policies, especially non-practicing policies, may exclude coverage for criminal, quasi-criminal or disciplinary actions.
- Class proceedings: Non-practicing policies may exclude coverage for class proceedings.
- Dependant coverage: Non-practicing policies may exclude coverage for legal issues relating to a dependant.
How to Decide Which Legal Insurance to Purchase
When selecting a legal insurance plan, it is important to consider several key factors. Assessing your current and future legal needs is the foundation for making an informed choice. Evaluate the types of legal matters you may encounter in the near future, such as family law issues, real estate transactions, or business legalities. Different plans emphasize distinct areas of coverage, so understanding your specific requirements ensures you choose a plan that meets your needs.
Comparison of providers is another critical component of selecting the right legal insurance plan. Not all providers are created equal, and research is imperative. Investigate customer service reviews, claims handling processes, and overall provider reputation. Consulting with others who have used legal insurance can also provide insight into which provider may be the best fit for your specific situation.
Understanding the terms of coverage is equally vital. Read the fine print carefully to ensure you know what is covered under the plan, as well as any exclusions or limitations. Familiarize yourself with the claims process to understand how to access legal services when necessary. Each legal insurance plan has different procedures and requirements, which can affect your access to legal help.
Keep in mind, selecting the right legal plan can lead to significant savings and peace of mind in knowing you have legal representation when needed.
Is Legal Insurance Worth it?
As you’ve seen, legal insurance doesn’t work the same as health insurance. It pays specific benefits, not actual expenses. That’s a pretty important distinction. The question then becomes whether the benefits that legal insurance offers are worth what you pay in premiums.
That answer depends on many things. Here are just some things to consider: The bottom line about legal insurance is that it can provide valuable access to legal help when you need it at a price you can afford. You can’t put a price tag on peace of mind. But buying legal insurance isn’t necessarily the right choice for everyone. If you don’t like the idea of paying premiums for something you may or may not use , if you don’t have the time or temperament to deal with a lawyer, or if you have a trusted family member or friend who’s a lawyer and willing to help – those are all potentially good reasons not to purchase legal insurance.
