Many employers offer legal insurance, which covers your legal costs when the need arises, for a low monthly fee. Since lawyers can be expensive, legal insurance seems reasonable—but is it worth the expense?
What legal insurance covers
The cost of legal insurance plans (also known as prepaid legal plans) typically ranges from $9 to $30 a month. With this type of service you can email, call, or meet with the attorney in person for advice or representation. Legal services can include wills, trusts, a divorce, traffic violations, consumer protection, child support, and property protection (like disputes with a landlord).
Prepaid legal membership can be beneficial for individuals who need simple document preparation or legal advice at a relatively low cost. As with health insurance, subscribers of legal insurance have access to a selection of in-network service providers that offer discounts for potentially high-cost expenses. Unlike health insurance, there are no co-payments or deductibles. In some plans, you might get a discount (usually 25% or more) on non-covered providers and extended coverage for your spouse or dependents, too.
The limitations of legal insurance
As with a lot of insurance, the devil is in the details. While the benefits seem impressive, many plans offer what are essentially low-cost services, like advice over the phone, a perfunctory review of legal documents, or a strongly worded letter to a business or agency.
When you kick the tires on some of the big ticket items like divorce representation, however, you’ll likely be charged a higher premium and the service can include restrictions on how many hours of representation you can claim. And you still might pay out of pocket for certain costs like document filing fees, expert witness fees, and court reporters’ fees.
Plus, a lot of basic plans will not cover (or fully cover) certain legal services such as contested divorce, bankruptcy, or criminal defense—say, for a drunk driving charge. When more involved representation is necessary, as in a contentious divorce, you might only receive a discount for what will still be an expensive lawyer.
Also consider what other types of insurance you have. For example, car or homeowners insurance might already cover some legal costs and offer better coverage. It’s also worth noting that most plans will have a waiting period, so you won’t be able to use your benefits right out of the gate.
Is legal insurance worth it?
Some critics of legal insurance don’t think that the yearly expense is worth the coverage. As critic Dave Ramsey puts it :
I tell people not to buy it. Prepaid legal costs about $300 a year. That’s about $3,000 over ten years. The average American consumer does not spend $3,000 in a ten-year period of time on legal bills. If the average American that was doing business with prepaid legal did—on average—spend more than $3,000 on legal bills during a ten-year period of time, while they took in $3,000, prepaid legal would be broke. They would be paying out more in legal services than they’re receiving in fees.
Instead, I would recommend you have a good emergency fund in place. Should the need to hire legal services arise, you will have the money to pay for it. You self-insure for the need for an attorney. On average, you’ll come out better.
Hard information on how much the average American spends on legal costs isn’t easy to find, but one 2015 estimate pegged it at $250 per year. That doesn’t mean legal costs can’t surprise you, or that the service won’t give you peace of mind. But knowing how much you might spend (and what’s already covered) will help you decide whether legal insurance is worth it for you.