Legal insurance for businesses

Legal insurance is one of many ways to protect your business from unforeseen costs, but is it right for your company? Find out what it is and what it covers.

by Michelle Kaminsky, Esq.
updated October 28, 2022 ·  2min read

One of the necessary steps in starting a business is taking adequate precautions to protect your company from devastating financial hits should the unexpected occur. You can guard against various types of losses by purchasing different kinds of insurance, including general liability, property, business interruption, data breach, business owner's policy, and others. Another type of protection that may benefit your business is legal insurance, which can help prevent major losses from unexpected legal expenses.

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The basics of legal insurance

A policy for legal insurance, also called legal expense insurance or protection insurance, protects its holder against potential litigation costs. For example, when a business is the policyholder, legal insurance protects that business from having to absorb the full expense of lawsuits filed by or brought against the business—costs that can quickly add up between attorneys' fees and potential damages.

This type of legal protection for business can be extremely valuable, especially if your company is operating in an industry that is highly susceptible to lawsuits, such as the manufacturing of a product that could potentially cause injury.

Still, because all types of business could be subject to lawsuits, legal insurance is worth considering no matter what your company does. Some of the most common types of claims businesses face include:

  • Hiring, firing, wage, and other employment decisions
  • Discrimination and harassment claims
  • Other disciplinary actions taken against employees
  • Intellectual property claims, such as copyright, trademark, and patent infringement
  • Breach of contract
  • Personal injury and tort claims
  • Criminal charges

Because there is such a broad range of circumstances in which a business could face litigation, even businesses that don't have an obvious risk for lawsuits may still desire legal insurance for unforeseen events.

Advantages of legal insurance

One of the main potential advantages of purchasing legal insurance for your business is cost. Having this kind of coverage can often provide legal representation at a lower rate than if you had to pay expenses out of pocket and on the spot.

In addition to providing coverage for unforeseen events, legal insurance may also provide coverage for those that are foreseeable, such as routine legal advice on business matters. For example, your policy might cover advice on intellectual property issues, such as protecting the company's trademark and brand.

Depending on your type of business, you may also be interested in learning more about personal legal expense insurance, which covers similar events but on an individual level. Self-employed individuals in various industries, including freelance writing, may want to consider such insurance.

Although legal insurance is quite common throughout the world, it is just starting to gain popularity here in the United States. Businesses seeking legal help have many options, from the traditional methods of calling up a local lawyer and keeping specialized attorneys on retainer to the more modern method of using an online service.

Legal insurance can help eliminate some of the guesswork involved with fees, but whether it's right for your business depends on your particular situation and comfort level.

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Michelle Kaminsky, Esq.

About the Author

Michelle Kaminsky, Esq.

Freelance writer and editor Michelle Kaminsky, Esq. has been working with LegalZoom since 2004. She earned a Juris Docto… Read more

This portion of the site is for informational purposes only. The content is not legal advice. The statements and opinions are the expression of the author, not LegalZoom, and have not been evaluated by LegalZoom for accuracy, completeness, or changes in the law.