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Legal expense insurance (LEI) is a form of insurance coverage in which the insured transfers the risk of litigation to an insurance company. In other words, when an insured person purchases this type of coverage, he pays for the privilege of having an insurance company pay for attorneys in the event that he gets into legal trouble. Legal expense insurance is sold in two forms: before the event insurance and after the event insurance.
Some types of insurance that individuals have contain provisions that ensure that the individual's legal expenses will be paid by the insurer. For example, a car insurance liability policy transfers the risk that a car accident victim will sue the driver to the driver's insurer, while a homeowner's insurance policy transfers the risk that a victim of an accident in the home will sue. These are not examples of legal expense insurance, although the risk of a lawsuit is still transferred; they are simply liability policies that protect against liability.
Legal expense insurance must be purchased separately and its sole purpose is to protect against incurring legal expenses and to transfer those expenses to the insurer. Corporations and individuals can both purchase legal expense insurance to protect themselves from having to pay potential legal expenses. Buyers of this insurance can purchase "before the event" coverage and "after the event" coverage.
If before the event coverage is purchased, then the insured pays premiums, usually on an annual basis, before any lawsuit or litigation occurs. In return for paying the premium, the insurance company is obligated to pay litigation costs if the insured is sued. Before the event coverage is often sold as an addendum to an auto or car insurance package, is purchased by companies, or is offered as a benefit to workers as part of their benefits package.
In before the event coverage, an event is defined as a lawsuit or litigation. When it occurs, the policy benefits become active. Generally, this type of insurance covers lawyers fees, legal costs, expert witness fees and any damages awarded to the defendant.
After the event coverage is purchased after an incident or event has already taken place. This type of coverage is taken out by those who are filing litigation, instead of those who face litigation. It ensures that the court costs will be paid by the insurance company in the event that the client loses his or her case.