Legal Insurance for Business | Benefits, Services & Coverage Costs

Everyone in the world will encounter legal issues at some point in their life, whether it is a dispute with a landlord, unfair dismissal, or a lawsuit. Hence the need for legal advice or representation will arise.

A business is more at risk of being sued as it deals with various third parties. A company can encounter lawsuits from both internal and external entities. Lawsuits may arise from customers, suppliers, competitors, or employees.

Legal insurance is for people who plan for potential legal risks that may lie ahead. Business owners with legal insurance have peace of mind. They can run their businesses without fear of a potential lawsuit that could disrupt their finances.

So, what exactly is legal insurance? Let’s find out.

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What is Legal Insurance?

Legal expense insurance, or LEI, is a type of business insurance that protects companies from legal expenses arising from litigations. The insurance covers various legal costs incurred by the insured as either the plaintiff or defendant.

Similar to medical insurance, which helps you offset costly out-of-pocket medical bills and rehabilitation costs, legal insurance is there to help you avoid paying exorbitant legal fees when facing a legal matter.

The amount of coverage you will receive depends on your monthly premium. The higher the instalment, the more cover you get.

Legal Insurance is Not Legal Aid

Although legal insurance and legal aid are closely related, they are very different. Legal aid is the assistance given to people who cannot afford their legal counsel. Usually, these are unemployed people, those receiving social grants, or people earning a low income.

Therefore, it is essential to note that legal insurance and legal aid should not be used interchangeably.

The South African Constitution mandates Legal Aid South Africa to provide tax-funded aid to the highly marginalised population. Legal Aid South Africa assists people who are facing criminal or civil litigation.

Legal aid is meant to protect citizens from violation of their constitutional rights. Therefore, business owners will not be able to apply for legal aid representation in matters concerning their company.

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Benefits of Legal Business Insurance

There are various benefits to legal business insurance, with cover for litigation expenses being the most prevalent. However, legal expense insurance offers policyholders services that are beyond monetary value.

Some key benefits of having legal business insurance include:

  • Access to legal advice concerning civil, labour, and commercial matters
  • Protection of company trade secrets, patents, and intellectual property (IP)
  • Business sales and expansions (e.g. Mergers and acquisitions, partnerships, or going public, i.e. listing on the Johannesburg Securities/Stock Exchange (JSE))
  • Compliance with regulatory bodies (e.g. the CCMA, Consumer Goods and Services Ombudsman (CGSO))
  • Tax compliance with the South African Revenue Services (SARS)

Legal Insurance Services for Businesses

Legal business insurance offers businesses a wide range of services. Typically after signing up for a legal insurance policy, you will be able to contact a lawyer for advice concerning civil, labour, or criminal matters. This can either be telephonically or face-to-face.

Other services you will have access to mostly do not require you to go to court. Your legal counsel can offer you services like drafting contracts, unpacking the terms of a supplier contract, or a leasing agreement.

People can also use legal insurance to settle legal matters outside of court by coming to a mutual agreement with involved parties. This will thus save you and your business both time and money.

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Legal Insurance Business Coverage

The legal insurance business coverage scope depends on the policy wording and monthly premium.

Business owners usually pick covers that protect them from civil and labour claims. This is to offset legal cases from regulatory bodies such as the Commission for Conciliation, Mediation and Arbitration (CCMA) and Consumer Protection Act, which exist to protect employees and consumers from unwanted business practices.

Additionally, business coverage also includes representation against breaching commercial contracts and debt-related matters, such as the blacklisting of debtors.

What Does Legal Insurance Cover?

A standard legal insurance policy covers businesses in labour, civil, commercial contract, and debt collection cases. The policy will typically cover litigation costs such as attorney fees, witness expenses, and court fees.

The legal insurance coverage also extends services to legal activities outside of court. These activities may include but are not limited to:

1. Civil Matters

  • Advice on legislation
  • Issuing or defending a summons

2. Labour Matters

  • Written warnings and disciplinary hearings
  • Workers’ compensation claims
  • Retrenchment or severance package proceedings

3. Debt Collection

  • Issuing letters of demand to debtors
  • Negotiating payment plans
  • Acquiring garnishee orders

4. Commercial Contracts

  • Drafting non-disclosure agreements
  • Drafting employment contracts
  • Drafting service level agreements

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Legal Costs for Business Insurance

Legal business costs can be expensive without insurance. The average cost of consulting with an attorney in South Africa is R1,500. At the same time, a day in court will set you back between R5,000 to R8,000.

Legal matters can take months, sometimes years, to resolve. Thus the legal fees will exponentially increase over time and negatively affect your business.

How Much Does LEI Cost?

Legal expense insurance is the primary way to safeguard yourself or your business against costly legal fees. In South Africa, an individual can expect to pay a minimum monthly premium of between R150 and R300.

The premium is highly dependent on the policy coverage inclusions and exclusions. However, you will be eligible to contact an attorney for any minimum amount for legislative guidance or advice.

Final Thoughts on Legal Insurance for Business

Businesses must ensure that they protect themselves from legal matters such as lawsuits and claims. Paying these expenses out-of-pocket can be detrimental to a company’s finances, especially for smaller businesses. That is why legal insurance is also referred to as legal protection insurance.

Business owners need to peruse a substantial amount of business legal insurance quotes to find one that aligns with their legal needs. Businesses that often interact with third parties must have legal cover, as they are most at risk of claims.

The existence of legal insurance cover allows businesses to worry less about legal matters, and rather focus solely on their key core competencies.

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