Long-term care insurance (LTCI) is an agreement between you (the insured) and an insurer. Generally, the insurer promises to pay a daily benefit toward the cost of long-term care (nursing home care, home health care, etc.) in exchange for your premium payments. However, there are many variations on this theme, so you'll see policies that pay benefits in different ways. The reason? LTCI is a relatively new type of insurance product. It is not as standardized as older products such as homeowners insurance and auto insurance, so there are many subtle differences between available policies.

Why do you need it?
Recent studies indicate that 40 percent of Americans over age 65 will need nursing home care at some point during their lives. With Americans living longer every year, this figure is likely to increase. The national average cost of a year in a nursing home is estimated at over $45,000; in some areas, the cost is more than twice that amount. Nursing home care is not covered by regular health insurance, and Medicare covers only minimal nursing home expenses. Consider, also, that 90 percent of long-term care services are provided outside of a nursing home setting: in homes, adult day care centers, assisted living facilities, etc. Medicare provides little or no coverage for these types of care.