Legal insurance (or sometimes called legal expense insurance) is exactly what it sounds like. It’s insurance that helps cover your costs in the event you are hit with various types of legal expenses. Those who hold legal insurance generally have access to legal advice and guidance from experts in the field. It can also provide financial coverage for the costs of pursuing legal action. This kind of insurance can cover legal expenses regardless of who initiates them. Whether you need file a lawsuit of your own or find yourself being sued by someone else, this special type of insurance can help.
History of Legal Expense Insurance
Believe it or not, legal insurance has actually been around since the Napoleonic Wars in Europe, during the early 1800s. Modern policies can trace their roots to England during World War I. However, it really only became popularized in North America in the early 1990s. Growing awareness among insurance brokers, business owners, and individual consumers has helped the market to grow over the past 25 years. Today, roughly 14% of people in the United States have some type of legal expense insurance. Business owners are the most frequent users, though.
Types of Legal Insurance
There are two main types: “After-the-Event” and “Before-the-Event.” Those who purchase Before-the-Event insurance tend to be small and medium-sized companies that don’t have their own in-house counsel. However, individuals can also purchase Before-the-Event insurance. These policies respond to unforeseen and unexpected legal events that can impact a person or business in the future.
Before-the-Event insurance covers business owners against various legal threats. It commonly includes disputes with employees, a notice of enquiry into taxes (or a full-blown audit), criminal defense expenses, property protection, or a health and safety inspection that results in a prosecution of the business. Depending on their specialization, years of experience, location, and size of their law firm, a lawyers’ fees can range from a couple of hundred dollars to $500 (or more) per hour. Having legal expense insurance can help offset those costs for individuals and businesses. It will also provide immediate access to professional legal advice.
After-the-Event insurance protects policy holders after a claim has already been initiated. It might even pay out for any disbursements that the insured person’s lawyer makes in pursuing a legal action on their behalf, as well as adverse costs the court could demand that the policyholder pays. Law firms often offer After-the-Event insurance to their clients to help mitigate the risk of losing in court, which can result in owing costs to the other party involved in a lawsuit.
How to Purchase Legal Insurance
Legal insurance can be purchased through a licensed broker or law firm in the United States and Canada. Most policies provide access to a comprehensive legal document center, a 24-hour telephone helpline, and other legal services. Most policies provide coverage in the range of $100,000 to $1,000,000.
Insurance riders can also added to policies to cover legal issues that may arise. This is commonly done when there are company-owned vehicles used by employees. When choosing an insurance provider, make sure to compare policy features. You’ll want to ensure that the policy has 100% paid-in-full coverage. You may also want to make sure it provides in-person legal consultations, and not just phone calls. Double check that the insurance provider ensures that attorneys are credentialed. You should research exactly which legal issues are covered by the policy (and which are not). Over-the-phone legal advice should be standard with most policies.
The Bottom Line
This specifica type of insurance can be helpful. However, it’s not something everyone really needs. Most often, it only benefits small and medium-sized business owners who do not have in-house legal counsel of their own. Legal insurance simply provides policyholders with professional law advice and financial coverage against potential costs. It doesn’t matter if they initiate a legal action themselves or find themselves on the receiving end of a lawsuit.
While this insurance might provide peace of mind to some individual consumers, it’s probably unnecessary. Unless you have a current legal issue or anticipate a future lawsuit, you are likely safe to skip this extra expense. On the other hand, professional legal help is quite expensive. So if you do want to protect against future costs, consult a licensed insurance broker for more details. Alternatively, you can also contact local law firms about whether they provide this kind of coverage on their own. Weight the pros and cons of your own situation to determine whether legal insurance is likely to be a benefit to you.