Your money: Too wealthy for legal aid? Don't give up

One day legal costs will come down. For now, insurance is the answer, writes Isabel Berwick

The tightening of the Legal Aid rules means that four out of five of us are now unable to claim any state help with legal costs. If you have more than pounds 2,498 a year in disposable income and pounds 3,000 disposable capital, you won't be eligible for free legal aid.

The good news is that you may have access to free legal advice and are probably better protected than you think against the crippling costs. Check the small print on all your insurance policies. On almost all household and motoring policies you'll find you have insurance that will pay your legal bills if other people bring cases against you. If you want to make sure, you can access free legal advice at all times - a few credit cards, plus most gold cards, offer their users access to a 24-hour legal helpline. Barclays offers its cardholders advice on employment and matrimonial cases as well as consumer law.

The Which? credit card from the Consumers' Association gives you access to expert CA lawyers who will give advice and free help to sort out your legal disputes. The catch is that cardholders first have to pay pounds 59 for a subscription to Which?.

The financial difficulty for most of us comes when we want to bring a case against someone else. Motoring-related claims you make against another party may not be covered by your insurance.

See if your legal expenses policy allows you to claim for so-called "uninsured losses" arising from an accident. According to the AA's Rebecca Hadley: "This term includes the costs of being off-work or a hire car - all the incidental costs of an accident you didn't budget for as part of your normal expenditure."

If you want to make sure you are insured for the possible costs of bringing a case against someone else, most big insurers offer their customers "bolt- on" policies that offer extra cover. The costs are reasonable: Graham Johnston, Eagle Star's head of underwriting, says family legal protection costs pounds 12 a year.

It covers you for legal costs, including employment and personal injury disputes. But most of us don't realise how important this insurance could be. "Most people don't take up this offer," Mr Johnston says. "Just 6 per cent of household policyholders buy the legal cover."

The problem is that if you take out this insurance you might be paying for something you never need. "After the event" insurance is a new option for civil cases, including claims for personal injury, professional negligence or for use in employment tribunals. If your case is accepted, this insurance will limit your costs, even if you lose the case.

The main condition underlying these schemes from Accident Line, promoted by the Law Society, and Law Assist is that a solicitor will take on your case only if he or she feels you have a strong chance of winning, and that there is a good chance of recovering costs and compensation from the other side.

Accident Line only offers insurance to people who have suffered injury through an accident. If you think you have a case, you'll be referred to a solicitor who will give free advice. If you decide to go ahead, there's a premium of pounds 85. In effect, this insures you against losing the case. It's a good scheme, and more than 1,000 lawyers take part. But the snag for people on limited budgets is that it won't be cheap if you win your case.

Lawyers who win can take 25 per cent of the damages awarded, or demand a "win fee", which is likely to double the costs. The Law Society says solicitors offering these deals must accept the lower of the two figures.

If you want to protect yourself against the costs of winning, as well as losing, there is only one scheme that might suit you. Law Assist has 650 solicitors on its books in England and Wales, with plans to expand in Scotland and Northern Ireland. It works by selecting strong civil cases and demanding a higher premium. The minimum is pounds 255, which buys you pounds 2,000-worth of legal expenses cover. If your costs mount, you buy more cover. If you lose the case, your solicitor makes a claim on Law Assist's central defence fund. If you win, you can keep your damages or compensation. And your legal costs are paid by the losing side.

In future there may not be a need for these insurance policies. The Master of the Rolls, Lord Woolf, has come up with a set of proposals that will make it easier and cheaper to take a case to court. Some have already been introduced, including the raising of the limit in the small claims court from pounds l,000 to pounds 3,000. Measures will include a "fast-track" legal system for cases up to pounds 10,000 and setting maximum legal costs at the top of this fast-track at pounds 2,500, although this does not include the extras such as VAT and "disbursements" - including reports and expert witness fees - that push up costs.

It's good news for those of us who are too wealthy for legal aid, but too poor for the courts. But there won't be any quick change. The proposals are with the Lord Chancellor's office but there's no timetable for their introduction.

Contacts: Accident Line, 0500 192939; Law Assist, 0181-771 7772; Which? card, 0800 920126; Barclaycard, 01604 234234

Isabel Berwick writes for `Moneywise' magazine.