Long-term care insurance pays for services that aren't covered by Medicare or traditional health insurance but are important when you can't fully take care of yourself. These include help with activities of daily living, such as dressing, getting to the bathroom, bathing and eating.

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Policies vary widely in cost and coverage levels. The premium is based on the type and amount of services you want covered, your age and health condition when you buy the policy and optional benefits, such as inflation protection.

Long-term care insurance policies include limits on coverage. There might be a cap on how much the policy will pay out over your lifetime and how much it will pay per day or per month for care. Some policies also limit the number of years they pay for long-term care. Typical time periods are two, three, four and five years.

How long-term care insurance has changed

Policies issued a generation ago typically paid for nursing home care. Today, most policies are comprehensive and cover a wide range of services in a variety of settings, including nursing homes, assisted living communities, adult day care centers, Alzheimer's special care centers and your own home.

You can also choose from a variety of riders - or, add-on benefits - such as inflation protection, which allows the value of coverage to increase with inflation. The cost of an inflation protection rider is built into the premium from the beginning.

Many policies also pay for services and equipment to help you live at home, such as electronic monitoring systems, wheelchair ramps, transportation to medical appointments, and training for a friend or relative to provide care.

Some policies even provide payment to family members or friends who care for you, according to the National Clearinghouse for Long-Term Care Information. Another common benefit pays for the service of a care coordinator, who meets with you and then arranges for and monitors care.

Another way to plan for long-term care expenses is through a policy that combines life insurance with long-term care insurance. The popularity of these policies has taken off in recent years, with sales growing 62 percent in 2010, according to LIMRA, a global life insurance research and consulting firm. The policies provide long-term care benefits and pay out a death benefit to life insurance beneficiaries if not all of the long-term care coverage is used.

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