Coming soon to a mailbox near you: materials asking you to join a prepaid legal service plan. You may even get an offer for participation in one of these plans in your next credit card statement. One prepaid legal plan has advertised 24-hour-a-day legal protection "for the price of a cup of coffee a day." Sounds like a good deal—but is it always as good as it sounds? What are these plans? What do they typically offer? How should you respond, and what questions should you ask?

This paper will give you the background and help you ask the right questions and get the answers you need to help you decide if these plans are right for you.

Sometimes called the "legal industry’s version of HMOs," prepaid legal service plans were owned by about 115 million Americans in 1999 and continue to gain in popularity nationwide. These plans are organized in different ways and are typically available through individual memberships, but they usually offer a fairly standard mix of legal services to their members—consumers, like you, who sign a membership agreement—in exchange for a fixed monthly fee. The legal services are actually provided by lawyers or law firms who are paid directly by the plan’s provider. The plan provider often uses only one or two law firms in a state, which are responsible for handling all the legal services provided under that plan to its members in that state. (For instance, one of these prepaid legal service plan provider in Tennessee uses only one law firm, located in Nashville, to cover potential claims and needs of all that plan’s members across all of Tennessee.)

The legal services offered by these plans are often limited to a fixed amount of legal advice over a fixed period of time (for instance, two telephone consultations, one contract review, etc.) during the course of one year. Not only are the services themselves limited, but the legal areas for which the plan’s services are actually available are often very limited.

The recruitment of consumers for prepaid legal plans is a very competitive business but—unlike insurance or health care policies or HMOs—currently it is not an extensively regulated business. While state regulators now govern prepaid legal plan providers’ activities in 16 states, no similar regulatory controls are required in most other states. What this means to you, the consumer, is that in most states, there are not a lot of regulatory officials whose job it is to look over the shoulders of prepaid legal plan providers, in case any issues or problems come up.

While they may be called a "HMO for legal services," offering legal coverage for a monthly premium, these plans are often very different from HMOs and other medical services plans. Just as patients should understand their HMO plans to ensure they receive the medical care they need, consumers need to know how prepaid legal plans typically operate in practice.

In Tennessee, one leading plan provider uses one law firm, located in Nashville, as its sole provider of legal services of all kinds for this plan’s members living in Tennessee. Any plan member in Tennessee who needs legal help or advice must call this firm, and the law firm then assigns one of its attorneys to handle the specific need. If the law firm’s lawyers cannot handle the matter directly, then the firm is responsible for contracting-out the service to another lawyer. What this means is that consumers, like you, have no choice as to the lawyer they receive for their legal needs under this kind of plan.

If you want to join a prepaid legal plan, you should ask about the experience and background of the plan’s legal service provider firm and its lawyers, and how it selects and evaluates the quality of those lawyers, to be sure if you are comfortable being represented by that particular firm. You also should ask whether your plan will let you change lawyers if you are not satisfied with their representation.

Limits not only exist as far as who provides legal services to you under a prepaid legal plan. There are often big limits as well as to what kind of legal services are actually available under these plans.

One prepaid legal service plan that operates in Tennessee has, in the past, featured the following list of services in several advertisements:

* Your attorney will go to court with (or for you);

* Unlimited phone consultations with attorney (on any subject matter);

* Attorney letters and phone calls on your behalf;

* Review of contracts and documents, and a comprehensive will included;

* Major and minor traffic violations and problems (in all 50 states);

* Lawsuit protections;

* 50 hours of IRS audit time;

* Divorce/custody matters; and

* Bankruptcy.

Facially, this sounds like a pretty good deal. What’s the catch? The limitations and exclusions contained in the actual membership contracts for these plans can, in actuality, be much more narrow in scope than what is in the advertising. A few examples of the "fine print" in one leading plan’s typical membership contract will give a taste of the real limitations of many of these plans.

First, the plan offers "unlimited" toll-free telephone consultations for personal and business legal questions. Again, this sounds good, but it may not be of much real benefit to the consumer. Why? As most lawyers know, not many legal problems of any level of complexity can be resolved with just a telephone consultation, and under this part of the plan, "live," in-person office meetings with the lawyer are not allowed. Also, the membership contract provides an exclusion by which the plan provider’s lawyer has sole discretion—in other words, all rights to make a final decision—whether or not to advise the member on any legal matter. You also need to be aware that—while their ads may talk about "around-the-clock" legal protection—some prepaid legal service plans’ contracts often limit the availability of these services to regular business hours. Legal help on weekends and holidays is often not covered and, so, will not be available if you need it on a weekend or holiday.

Prepaid legal plans may also provide for legal document review. For this kind of service, you might expect that the plan’s lawyer will look at a contract, property deed or other kind of legal document for you and give you legal advice. For some of these plans, however, the plan’s lawyer will only review personal legal documents of 10 or fewer pages where the member is a contracting party. In other words, for example, if you’re a member of one of these plans and your parents, spouse, son or daughter want to enter into a contract, the plan’s lawyer may have no obligation to help your relative. Why? Because you—not your relative—may be the only person in your family eligible to get service under your prepaid legal service plan. Unlike group legal plans that are sometimes available as an employee benefit, which usually cover the member’s spouse and dependents, that may not be the case with all prepaid legal plans. Before you sign up, be sure that you ask and learn who in your family is eligible to be covered by the plan.

Also, of course, not all contracts are of "10 or fewer pages or less." If you get a contract that’s more than 10 pages long, under this plan, you might be out of luck. Some plans also state that (1) the member is entitled to only one review per year, and (2) the plan’s lawyer is only required to give out advice by telephone. Again, as many lawyers will advise, there are times when an in-person meeting can be much better and more helpful than a telephone call for reviewing legal documents.

While many prepaid legal service plans provide for preparation of a Last Will and Testament "according to [the member’s] testamentary desire and needs," in the case of several plans, no tax planning services are offered as well as the preparation of the will. Tax advice on what a will should have and do is often every bit as important as the will itself. Under these plans, then, you would get the will but not tax advice that—if you had it—could encourage you to make different choices in what you might want in your will.

For motor vehicle-related legal services, these plans often offer legal representation for moving traffic violations and certain motor vehicle-related criminal charges. However, personal injury/property damage collection may be very limited (in one case, only $2,000 or less). Trial defense benefits may also be provided, but specific exclusions exist for divorce or marital separation, child custody, bankruptcy, DUI/DWI, or drug-related matters. If you already have or can obtain insurance with legal representation for any particular risk or exposure or if your employer’s policies already provide protection against job-related criminal charges, these services might provide little added benefit to you. Ask what exclusions apply for motor vehicle and trial defense benefits.

For some plans, the trial defense benefit may also limited by the amount of attorney time the plan’s lawyer can spend on certain parts of the case. During the first year of membership, one plan limits this benefit to just 60 hours, of which only 2½ hours are provided for all pretrial efforts. That leaves 57½ hours of actual trial time. Because most of a lawyer’s time is usually spent in pretrial work, not in the trial itself, this division of time is not one that makes a lot of sense.

A similar time issue exists in some plans for IRS audit services. This may include no assistance in responding to U.S. Internal Revenue Service ("IRS") requests before a plan member actually gets notice that his or her taxes are being audited by the IRS. In the case of our consumer’s plan, once she gets notification of an audit from the IRS, her plan provides for only one hour of attorney time is allotted within the first 30 days for consultation and assistance. Usually, it is more helpful for a person to get good advice as to how to respond to an IRS inquiry before he or she is actually facing a tax audit.

For all kinds of services under many plans, there may be specific exclusions. These can include fines, costs, penalties, expert witness fees, bail bonds or other kind of bonds or out-of-pocket expenses. What this means is that the plan may not help pick up the costs to help you cover these kinds of expenses. These plans can also provide exclusions for "unmeritorious" claims or positions and "any matter which [the attorney] determines is raised an inordinate or unreasonable number of times without substantial change of circumstances." If this is the case, the plan’s attorney may decide that your case is not a "good" one and you may not have legal representation to help you. Some plans’ contracts may also provide that the member will be required to pay a retainer fee to the provider attorney to cover all reasonably anticipated costs and legal services not covered by the contract. In other words—despite your monthly deductions to cover plan membership—you may have to pay more money out of your pocket to the lawyer the plan selects to assist you. Besides signing a contract with the plan, you may also be required to sign another contract with the plan’s lawyer before that lawyer helps you.

In short, if you are considering joining a prepaid legal plan, you should fully investigate it and decide if membership makes sense for you and if it is worth the monthly fee.

You should, at a minimum, ask these questions:

* How long has the plan been in operation? Are statistics and financial information about the plan available for me to review?

* How much is the membership fee? How often do I pay it?

* What’s the term of my membership?

* What are the rules and procedures for plan enrollment and withdrawal?

* What legal services are covered, to what extent are they covered, and what are the exclusions to coverage?

* What is the schedule of costs and fees that are not covered by the plan?

* Will my personal needs be fulfilled by the limited range of services offered by this plan?

* Who are the attorney providers of the plan? Where are they located? What is their experience? What hours are they available? How does the plan select its attorney providers, and how does the plan screen them to ensure their quality and client satisfaction?

* Am I comfortable being represented by a designated attorney provider?

* Can I change attorneys if I become dissatisfied with my representation?

* Is there another contract, separate from my plan’s membership agreement, that I will need to sign with the plan provider’s lawyer or law firm? If so, what does it provide, and what limits or exclusions to coverage are in it? Are these separate fees I must pay in it?

* Who is the plan’s administrator, and what is the administrator’s address and phone number if I have questions or concerns?

* Does the plan provide client references that I can check? What do previous members of the plan say?

The State Attorney General’s office is also interested in and available to help address complaints or concerns as to prepaid legal service plans operating in Tennessee. The address of the local office of the Attorney General is 617 Cumberland Avenue, Knoxville, Tennessee 37902 and its telephone number is 594-6222.

You owe it to yourself to be certain that you’re satisfied with the answers to each of the above-listed questions before you sign on the dotted line.