Legal expenses insurance without a waiting period?

We are often asked whether there is legal expenses insurance without a waiting period. Our answer is: ‘It depends’. Most legal expenses insurance policies have a waiting period of three months. Some policies are also available without a waiting period, e.g. in the area of traffic legal expenses. On the other hand, according to our research (as of August 2024), there is practically nolegal protection without a waiting period in the area of employment law. So if the termination and action for unfair dismissal occurs before or during the waiting period, most insurance companies will not pay anything. Exception: if you change insurers without interruption, the waiting period does not normally start again from the beginning. You have immediate insurance coverage.

Legal expenses insurance – what is it?

Legal expenses insurance is one of the most common types of insurance. Almost half of all households in Germany have legal expenses insurance. Legal expenses insurance is offered for a range of different areas of law (e.g. traffic law, employment law). As a rule, legal expenses insurance covers a ‘package’ of several areas. Employment law legal expenses is included in the packages for private and professional legal expenses insurance offered by many insurance companies. However, it is important to read the ‘small print’ to be sure that employment law is sufficiently covered by ‘your’ legal expenses insurance.

Legal expenses insurance covers the costs of legal disputes (attorney and court costs) up to the agreed maximum amount. However, it does not protect against all legal disputes and all costs. Divorce, inheritance disputes, and disputes over the construction of a house are rarely covered. In labour law proceedings, it is particularly important that the legal fees are covered to a sufficient extent. This is because, before the labour courts, each party generally pays their own legal fees, regardless of who wins in court. And for the lawyer, costs of €2,000-3,000 can quickly add up.

Do you need legal expenses insurance at all?

Again, the clear answer is: ‘It depends’. The consumer advice centres recommend: Before you decide on legal expenses insurance, you should carefully consider whether and which insurance makes sense for you. Important factors here include

• The existence of other insurance cover: An important aspect here is the existence of other insurance benefits, such as legal protection through a trade union. This can offer you legal advice, legal assistance and legal representation in the event of employment disputes.
• The likelihood of a legal dispute: Another factor to consider is the likelihood of a legal dispute, in particular whether and when you expect your employer to terminate your contract.
• The specific terms of the insurance: You should also check the exact terms of the insurance, including coverage of legal fees for actions for unfair dismissal, any waiting periods and any legal disputes that are already underway.

Speaking of waiting periods: It is crucial that no legal dispute is in progress when the contract begins. The cause of a legal dispute may not arise until after a waiting period of three months from the start of the contract. More on this in a moment!

Is there legal protection without a waiting period in employment law?

If you search for ‘legal expenses insurance without waiting period’ on the internet, you will probably find several thousand results. But this is deceptive, because according to our research (as of August 2024), a general waiver of waiting periods is almost non-existent. Some insurers do waive the waiting period in certain areas, for example in some areas of traffic legal expenses insurance. However, this does not apply to employment law. In any case, during our research on employment legal expenses insurance, we found no insurance companies that offer full legal protection without a waiting period of at least 3 months.

ARAG does offer legal expenses insurance with immediate assistance – and even without a waiting period in some employment law matters. However, ARAG also does not pay if you have already contacted (or hired) a lawyer or if legal proceedings are already pending – for example in the form of legal action. Incidentally, the tariff is not exactly the cheapest, so here too you should do the maths thoroughly before taking out the policy to see whether this insurance is really ‘worth it’ taking into account the exclusion criteria and deductible. In many cases, this will not be the case.

And that doesn’t have to be a bad thing. Because if you only believe that you are threatened with termination ‘at some point’, there may still be enough time. Then taking out an legal expenses insurance is recommended in employment law.

When do you still get immediate legal protection?

However, there is an exception to the above rule where you can actually take out legal expenses insurance without a waiting period: If you are switching to a new legal expenses insurance policy, your previous insurance period can be taken into account. The prerequisite for this is that you were insured with your old provider for longer than the waiting period of the new provider. It is important to ensure a seamless transition in order to avoid any gaps in your insurance. Therefore, check the notice periods of your old contract and plan the changeover so that the new contract begins immediately.

The notice periods are usually one to three months. For example, if your old contract ends on 31 December, the new contract should start on 1 January. The crediting of insurance periods only applies to parts of the contract that were also included in the old contract. Newly added benefits are subject to the usual waiting period of usually three months. Therefore, plan the change carefully and read the ‘small print’ in the new contract.

Why are there waiting periods at all for employment law insurance?

Insurance companies use waiting periods as a protective mechanism against so-called ‘purpose-built contracts’. These are situations in which, for example, an employee takes out employment insurance shortly before an impending legal dispute. This is done, of course, in order to be able to pass on the costs of the legal dispute, which was believed to be certain, to the insurance company. Such a procedure, which is referred to by insurers as negative selection (or ‘adverse selection’), is to be prevented by the waiting period. Therefore, in the area of employment law, for example, insurance cover only takes effect after the waiting period of usually three months.

If you receive a written warning or dismissal within the waiting period, you will usually bear the costs of any subsequent legal disputes yourself. Therefore, it is advisable to consider taking out legal expenses insurance in good time and to examine alternatives. If there is a possibility that you might be dismissed in the near future, it makes sense to take out legal expenses insurance. However, ‘near future’ does not mean the next three months, because then the waiting period would apply and you would have to bear the costs yourself again. In principle, the cause of the legal dispute may only have occurred after the waiting period has expired.

Conclusion

If you don’t yet have legal expenses insurance, should you take out a policy now? That depends. Legal expenses insurance is of no use if you don’t take out a policy until a dispute before the labour court – e.g. due to an already announced termination of the employment contract – already exists or is imminent. So think about whether you need legal expenses insurance in good time. This means that the waiting period of usually three months has expired by the time the worst happens. However, legal expenses insurance without a waiting period is not available in employment law. So if you think you are about to be dismissed, but you still have at least three months left on your contract, it is advisable to take out legal expenses insurance immediately. To be on the safe side, you should read the insurance conditions to find out exactly what waiting period applies. And don’t go for all-round protection, because with individual legal expenses packages such as ‘private’ and ‘professional’, the insurance cover can be put together according to your needs. And if you change insurer, you should make absolutely sure that the new contract begins seamlessly.