Most attorneys have heard about legal plans and wondered what they are and how they work. As an advocate for legal plans and a board member of the American Prepaid Legal Service Institute, I can tell you that legal plan membership is the best-kept secret in the legal profession.
Many people would benefit from legal assistance but do not seek lawyer services. According to a survey conducted by Leo J. Shapiro & Associates for the American Bar Association Section of Litigation, seven out of 10 US households (71%) report experiencing some event in a 12-month period that might have led them to hire a lawyer. The study indicated that for the consumer, legal services are among the most difficult services to buy. When it comes to hiring a lawyer, consumers feel uncertain about how to tell a good lawyer from a bad one. It is often unclear exactly what the lawyer will do for them and how much the lawyer will charge. More than half of those who might need a lawyer say they do not plan to hire one.
A legal plan allows a member to talk to a lawyer whenever the member thinks he or she might have a problem, without fear of the cost. With the proper legal advice most problems can be avoided or quickly resolved. If further services, such as representation in court, are needed, a legal plan may help a member find the right lawyer, pay all or part of the legal bills, or actually provide a lawyer to handle the case at no cost to the member. By putting legal advice as near as the telephone, legal plans enable their members to prevent legal questions from becoming legal problems. Sixty-five to 85 percent of all problems brought to lawyers through plans can be resolved through nothing more than advice and a small amount of follow-up.
The promise of having a lawyer readily available gives people peace of mind. Legal plans can also save members money in complex legal matters. Even where a plan doesn’t pay a lawyer’s entire bill, the member usually benefits from discount rates that plans can negotiate with panel lawyers. Finally, sponsoring a legal plan can benefit employers because employees with legal problems are more reliable and productive when legal help is available, and a plan may help the employer attract and keep quality employees.
There are many different types of legal plans. A prepaid legal plan is any type of arrangement in which a participant prepays or an employer pays on behalf of employees for legal services that participants may require in the future. In many respects, a prepaid legal plan is similar to a medical benefit plan: a consumer pays a fixed amount each year or month in exchange for certain service benefits to be used as and if needed. In a prepaid legal plan, money is paid in advance to defray the cost of legal services furnished in the future to persons enrolled in the plan. Although a prepaid plan is usually offered to members of a group, a few large plans are also be available to the general public. Prepaid plans vary widely in cost, benefits, and the way in which legal services are furnished.
The prepaid access plan is designed to provide easy access to a lawyer for legal advice and other noncomplex preventive services at low cost. An access plan provides an enrolled member with specified basic legal services at no additional cost, plus other services at discounted legal fee rates. The basic service may include telephone advice (via a toll free number), brief office consultations, a simple legal document, a letter written by the lawyer, or other service that is not overly time-consuming. If the plan member wants or needs services beyond the limited items that are prepaid by the subscription fee, he or she and the lawyer arrive at a mutually satisfactory fee for service based on the plan’s fee schedule or hourly rate. For these additional services the member-client pays the lawyer directly.
The comprehensive prepaid plan goes considerably beyond the access plan in the amount and type of legal services provided. Generally, all plan benefits are available to the plan member at no additional cost once the prepaid premium or subscription fee has been paid. Typical employer-funded benefits include unlimited legal advice on any subject; negotiations with adverse parties; drafting legal documents such as contracts, wills, and deeds; and representation in court. Although even the most extensive plans limit or exclude coverage on certain items, most comprehensive plans are designed to meet 80 to 90 percent of the personal legal service needs of the client.
A group legal plan may have a prepaid feature, such as those offered by employers as an enrollment choice and paid via a payroll deduction, but may also be similar to a group discount buying service for lawyer services. Group legal plan benefits—usually available without charge to members of an association, union, coop, or other group—feature free telephone legal advice plus fee discounts from a participating lawyer for other services. In its simplest form, a group plan is an arrangement whereby members of a group are referred to a lawyer or law firm participating in the plan. The plan lawyer may provide free or low-cost advice and consultation, by telephone or in the office, to the group member. If service beyond advice is needed, the plan lawyer is contracted to provide additional services according to a special plan fee schedule. The plan is usually publicized in special mailings to group members, announced at meetings, or written up in the group newsletter. There is no cost to the group itself or to the individual member for establishing or having the “plan” available. The member may pay fees according to the fee schedule directly to the lawyer later if services beyond basic advice are needed.
Almost every legal plan provides legal advice and consultation by telephone as a basic service and may also include brief office consultations, review of simple legal documents, preparation of a simple will, and short letters written or phone calls made by a lawyer. Other plans offer more comprehensive coverage for trials, marital problems, bankruptcy, real estate matters, and the like. In addition to the member, most plans include or offer coverage for his or her spouse and dependent children.
The plan sponsor is usually the organization in whose name a legal plan is offered or operated. The sponsor may be an employer whose employees receive legal services as a fringe benefit or a labor union whose members are eligible for benefits under a collective bargaining agreement or because the union funds a plan as a member benefit. An insurance company or an administrative company may sponsor a legal plan, although such entities are usually referred to as the plan administrator, operator, or underwriter. A plan sponsor might also be an organization, such as a credit union, that has conducted negotiations with various plan designers and selected one to which it gives its endorsement. The plan would be called the “XYZ Credit Union Legal Services Plan,” and the credit union would recommend to its members that they join on a voluntary basis.
The plan administrator is the person or organization that arranges for a panel of lawyers to provide services, collects the moneys paid into a prepaid plan, publishes and circulates descriptions of the plan to plan members, and processes and pays the claims of lawyers who provide services. If the plan enrollment is voluntary (see definition below), the administrator frequently handles the enrollment and marketing functions needed to ensure that there are sufficient numbers of plan members to make the plan economically viable. The administrator may be a person employed directly by the plan sponsor, an outside firm, or an insurance company that may function both as an administrator and insurer.
Plan lawyers are often the front line for legal plan members. In order to provide appropriate help and ensure client satisfaction, it is critical that these service providers fully understand what legal services are covered and how the legal plan operates. Most legal plans have a contractual arrangement with lawyers in private practice who provide the legal services to serve their members’ needs.
Many plans use a broad panel of lawyers located throughout the area where plan members live and work to provide covered services. Other plans use one law firm or a small group of law firms in each state to efficiently provide some basic benefits, such as legal advice by telephone and other noncomplex legal work. Some plans in which the geographic concentration of plan members (such as those working in a large industrial plant) have set up special legal service offices with salaried lawyers who work exclusively for plan members. However, if members live far from the plant or in adjacent states, it may be necessary to have a group of private law firms in each area under contract to provide services to those plan members.
For prepaid legal plans, the way in which people become members of the plan is extremely important. More than any other factor, the enrollment method will determine what kind of benefits may be offered, under what conditions, and at what cost. For prepaid plans offered on a voluntary enrollment basis, individuals enroll voluntarily in the plan and pay the prepaid charge, either by mail, during individual sales presentations, or during an employer’s open enrollment period. The true group or 100 percent participation plan is one in which all members of the group are automatically included in the plan by virtue of their status as group members or employees. Most true group prepaid legal plans are sponsored by employers as an employee benefit, like a medical or dental benefit. Some universities provide legal plans for all students, financed by general student activity fees. During the collective bargaining process, some unions have negotiated legal plans as a fringe benefit paid for by the employer.
How Much Does a Legal Plan Cost?
If you are a member of an organization that sponsors a group legal plan, you usually pay nothing more than what the organization charges you to belong. If your employer offers legal services as part of its employee assistance program (EAP), you would pay for specific legal services over and above what the benefit provides. Prepaid legal plans may cost as little as $70 per year per member and as much as $400 per year. For the $70 per year plan, a member may receive some advice and consultation plus a few very limited services but must pay directly for services like a divorce or the defense of an eviction. For the $400 plan member, nearly every conceivable legal problem, whether a civil or criminal proceeding, can be covered. More comprehensive prepaid plans that serve nonemployment groups (e.g., credit unions) cost between $12 and $25 per month for benefits that are somewhat more modest than those offered as fringe benefits. Type I access plans are usually marketed at between $9 and $12 per month.
Are Legal Plans Subject to Regulation?
Yes. Legal plans involve the practice of law, which is regulated by the courts. In some states, disciplinary rules for lawyers can influence the form of a plan, and the plan might have to be registered with the state bar association or some other authority. Similarly, plans that resemble insurance arrangements may be regulated by the state insurance commissioner. If an insurance company operates the plan in the form of an insurance policy, regulation by the commissioner is a certainty. If a plan is operated as an employee welfare benefit plan, it will be regulated under the federal Employee Retirement Income Security Act of 1974 (ERISA). Those interested in starting a plan must be familiar with the relevant federal and state laws and regulations to ensure that they are in compliance.
In summary, legal plans:
- Provide easy access to a lawyer, especially for preventive services, with no worry about high initial consultation fees;
- Make payment of lawyer’s fees easier, if not painless, depending on the plan benefits;
- Make the cost more certain because of published fee schedules;
- Provide customer service so that plan members can have their questions answered about the plan, its coverage, or their relationship with plan lawyers.
If you would like to learn more about legal plans and incorporate them in your practice, take a look at the American Prepaid Legal Institute’s website and attend their annual conference.