The Regulatory Landscape of Prepaid Legal Plans

Prepaid legal plans offer coverage that grants individuals and families access to a network of qualified attorneys in exchange for a predetermined monthly or annual fee. With legal expense plans, participants can receive advice, have legal documents drafted and reviewed, and receive consultation or representation in court — for a fraction of the cost associated with hiring a lawyer. 

These plans leverage a network of attorneys who have agreed to provide services as part of their contract with the legal expense plan organization. There are typically no bills, deductibles, or claims forms to fill out, provided you use an attorney within the plan’s network.  

For prepaid legal plans, typically members pay a periodic fee for access to certain legal services (i.e., document review, document drafting, consultations, etc.) provided by attorneys within the plan’s network. In these types of plans, the provider pays its member attorneys directly for the services provided to its subscribers. Prepaid legal plan providers may also provide access to other legal services provided by their member attorneys outside the scope of the provided legal services at a reduced cost. Many states regulate this as insurance or under a separate heading on the statutory level.

For legal membership plans, generally, members pay a periodic fee for access to a network of attorneys who will provide their services at a reduced cost. For this category of legal plan, providers do not pay their member attorneys on behalf of their subscribers for the legal services provided. Legal membership plan providers cannot provide access to specific legal services, only access to attorneys at a reduced cost. Generally, states do not regulate the legal membership plan on the statutory level.

There are many different variations of prepaid legal plans. Depending on the state and depending on the statute, a prepaid legal plan may appear under various aliases. Below are some examples of terminology often used to refer to prepaid legal plans:

Legal Insurance

Legal Expense Plan

Legal Expense Organization

Legal Expense Insurance

Legal Services Insurance

Legal Service Plan

Legal Services Contract

Prepaid Legal Services Plan

Prepaid Legal Liability Insurance

Prepaid Legal Contract

Many states have included what would be deemed a prepaid legal plan within their definitions of “legal insurance,” requiring prepaid legal plans to be licensed as an insurance product. For example, in Arizona, a “prepaid legal insurance contract” means “a contractual obligation to pay or reimburse for specific legal services rendered in the normal and ordinary course of business by an active member of the state bar of Arizona.” § 20-1097(3).

Similarly, in Florida, “legal expense insurance” means “a contractual obligation to provide specific legal services, or to reimburse for specific legal expenses, in consideration of a specified payment for an interval of time, regardless of whether the payment is made by the beneficiaries individually or by a third person for them, but does not include the provision of, or reimbursement for, legal services incidental to other insurance coverages.” § 642.015(3).

Though several states have defined prepaid legal plans distinct from insurance and have created a separate regulatory process for these plans. For instance, in Virginia, “legal services plan” means “a contractual obligation or an arrangement whereby legal services are provided in consideration of a specified payment consisting in whole or in part of prepaid or periodic charges, regardless of whether the payment is made by the subscribers individually or by a third person for them.” § 59.1-441.1.

A number of states have excluded prepaid legal plans from their insurance regulations or have decided not to regulate the product or legal services plan products. Essentially, in some states, these services may not fall under any regulatory purview. But that depends on the type of prepaid legal services and the overall business model of a prepaid legal plan. One of the main reasons for this is that they wish to encourage the availability of the product within their state, or due to the minimal coverage aspects of the plans, states find these plans do not require regulation. One example is Arkansas, where the General Assembly passed legislation in 2023 that repealed the Arkansas Legal Insurance Act, determining that the Arkansas Insurance Department should no longer regulate the business of prepaid legal insurance.