October 28, 2008

Is a prepaid legal service a good idea?

My employer offers a service where I can get legal aid and services for a monthly fee. This idea has interested me. I figured that with a lawyer on retainer we could avoid hefty legal bills that might arise for various things like traffic accidents, filing a will, general advice or the unfortunate case of settling an estate. Legal bills can be hefty so buying some insurance towards it would seem like a decent idea. But does the cost of a pre-paid service justify the savings?

The fee for the service my company offers me is in the $20-30 range per month so its $250-350 per year. A private company that offers such a prepaid plan is Pre-Paid Legal Services Inc. Their rates are $312 a year or less. LawPlan from Metlife costs $395 a year. So in general it seems the pre-paid legal services cost $250-400.

A New York Times article that broke down spending on various categorizes as percents shows that legal services accounted for 0.3% of average consumer spending. So that means Americans are spending around $100 to $200 a year for legal expenses.

So it seems to me that the potential average savings from a pre-paid plan are generally a lot less than the annual costs.

On a pure cost basis I don't think the pre-paid plans would be a good idea. Why pay $250 a year for something that typically costs $150? I won't.

Other considerations for pre-paid legal plans.

You're locked into specific attorneys. If you get a lawyer from the plan who you dislike you won't be able to freely switch to another lawyer.

Pre-paid plans only cover certain services. The plan that my work place offers covers some basic stuff but not other things. They cover wills, deeds, traffic tickets and some other services. They don't cover probate, divorce, and a variety of other common legal issues.

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