Long-term care insurance is similar to other insurance in that it allows people to pay a known and affordable premium that offsets the risk of much larger out-of-pocket expenses. Although long-term care insurance is relatively new, more than 100 companies now offer coverage.

Several types of policies are available, but most are indemnity policies. This means that they pay a fixed dollar amount for each day you receive specified care either in a nursing home or at home.

Today, many companies also offer "integrated policies" or policies with "pooled benefits." This type of policy provides a total dollar amount that may be used for different types of long-term care services. There is usually a daily, weekly, or monthly dollar limit for your covered long-term care expenses. For example, you purchase a policy with $200,000 of "pooled benefits." Under this policy, you may be allowed to use up to $150 a day towards your covered nursing home, assisted living, or home care expenses. No policy is guaranteed to cover all expenses fully.

Policyholders usually have a choice of indemnity amounts ranging from $50 to more than $300 per day for nursing home coverage. The daily benefit for at-home care may be less than the benefit for nursing home care. Note, though, that you are responsible for your actual nursing home or home care costs that exceed the daily amount you purchased.

Because the per-day benefit you buy today may be inadequate to cover higher costs after a number of years, most policies now offer an inflation adjustment feature. In many policies, for example, the initial benefit amount will increase automatically each year at a specified rate (such as 5 percent) compounded over the life of the policy.

Some life insurance policies offer long-term care benefits. Under these accelerated or living benefits provisions, a portion of the life insurance benefit is paid to the policyholder if long-term care is needed instead of to the beneficiary at the policyholder's death. Some companies make these benefits available to all policyholders; others offer them only to people buying new policies.