About Pre-paid Legal Insurance

Just like health insurance that protects you from financial loss resulting from an illness for a monthly premium, prepaid legal insurance gives you access to certain legal services for which you pay a monthly fee. A prepaid legal contract typically covers the cost of a will, consultation with a lawyer, legal advice and review of legal contracts, and it can even cover a lawyer's time to represent you in court, depending on the terms of the agreement.

History

Prepaid legal contracts are relatively new in the United States, but the industry has been in existence in Germany since the early 1920s. In 1972, the first such company began offering prepaid legal services in the U.S. with the founding of Pre-Paid Legal Services, Inc., in Oklahoma. Since then, many others have been established, such as Hyatt Legal Services, a division of Metropolitan Life. According to the National Resource Center, there are almost 20 million people in the U.S. with prepaid legal contracts, and that number is growing.

Marketplace

According to the American Bar Association (ABA), about half of all citizens have a need for an attorney each year. Thus, the pre-paid legal service business is growing faster than most other industries because it makes legal services available to the general public for a reasonable monthly price. Families and individuals pay from $16 to $26 per month for this insurance, and many employers offer these services to their employees.
If you decide to buy a contract on your own, consult with the ABA or another resource for a list of reputable companies.

Considerations

About 50 percent of all people who have prepaid legal services opt to drop their contracts each year, which would suggest that they buy it only when the need arises or they do not think the coverage is justified by the monthly charge.
Many companies are represented by independent contractors who pay a one-time fee of about $200 to sell these services for them. If you buy a contract from the contractor rather than directly from the company, be sure that you understand the coverage in the contract.

Warning

Some plans cover very little and you will be charged the normal rates for all but the basics. In addition, an attorney who accepts the prepaid plan may try to convince you to upgrade the service you are asking him to perform.
Also, if you don't like the attorney who is assigned by the company, your plan may not allow you to change or there may not be a lawyer in your community who does that type of work for that carrier. You should find out which attorneys work with your vendor in your community before signing a contract.
Finally, except for a 25 percent discount on the fees charged by lawyers, the typical prepaid contract does not cover things like bankruptcy, divorces, child custody or drug-related issues.

Potential

Prepaid legal insurance is hitting its stride as more employers offer it to employees, and there are a growing number of salespeople marketing the product. Adding to its appeal is the rapidly rising rates of attorneys.