What is Legal Insurance?

Legal insurance is coverage for expenses related to legal actions. Most plans for legal insurance typically covers attorney’s fees, court costs, a judgment and other expenses associated with a lawsuit or other legal matters. Legal expenses insurance (LEI) is a type of coverage that is usually purchased either before or after some type of legal action begins. Physicians, accountants, and other professionals may purchase malpractice insurance to cover expenses related to legal action filed by a client. Several credit card companies and employee benefit plans offer prepaid legal insurance to provide legal services to individuals.

Legal expenses insurance coverage is typically purchased either before the event (BTE) or after the event (ATE). This type of policy is legal protection from the expenses of a lawsuit that may occur or has already begun. The related expenses to a lawsuit covered under LEI may vary among plans.

A single corporation or individual can purchase either form of LEI. When purchasing LEI, the insured wants to prevent personal financial hardship in trying to cover high legal fees. Usually, the insured is also responsible for paying the legal fees of the opposing party.

Insurance purchased before the event is paid through monthly premiums. If a lawsuit is filed against the insured, the BTE legal insurance policy may cover all costs related to a claim. Most policies will cover legal representation for both sides and the judgment or settlement.

"After the event" literally means purchasing legal insurance after a lawsuit is filed. A person or corporation has the option to purchase ATE and pay the premiums while the case is litigated in court. Premiums are typically higher, but the ATE insurance will cover most legal fees and the judgment if the insured loses the case.

Most professionals are protected with malpractice insurance when named in a lawsuit that charges professional misconduct. The misconduct typically leads to a breach in duty of care, resulting in a loss or injury to a client. The malpractice insurance policy usually covers related legal costs such as attorney’s fees, court costs, and the judgment if found liable.

Prepaid legal services may not cover all legal expenses. A monthly fee gives the purchaser access to legal services at a discounted rate. Participants in the plan may have to pay fees in addition to the monthly service fee.

Legal insurance plans that are prepaid are typically offered as part of an employee benefit package or to individuals who purchase consumer products. Some plans provide coverage for specific legal services. Services may include legal representation for a traffic violation or accident.