It is estimated that approximately one-third of individuals age 65 and older will require at least three months of nursing home care, 24% more than one year of care, and 9% more than five years (Source: What Is the Distribution of Lifetime Health Care Costs from Age 65?, March 2010). Those figures do not include individuals who require home care services. In 2008, the average annual cost of a nursing home was $71,000 (Source: What Is the Distribution of Lifetime Health Care Costs from Age 65?, March 2010).

Who needs long-term-care insurance? If your assets, not including your home, equal at least $2 million, you can probably fund long-term-care costs with those assets, although you may not want to deplete your assets for this care. Those with very few assets will probably be covered by Medicaid. It is the people between these two extremes who should consider long-term-care insurance. This coverage may be especially important for women, who tend to outlive their husbands.

If you're considering long-term-care insurance, review these points:

• Purchase the insurance at a relatively young age. You should probably purchase the insurance by the time you are in your 50s or early 60s. After that, the premiums get much more expensive. Also, if you develop a serious health condition, you may not be able to purchase the insurance.

• Check for inflation provisions. Since you may not receive benefits for many years and costs for long-term care have been increasing significantly in recent years, check inflation protection in your policy. You can obtain simple or compound inflation protection. Simple protection increases the benefit amount by a specific percentage of the original benefit each year. Compound inflation increases the benefit on a compounded basis, so it provides substantially more protection. Another option is to make sure your policy contains an annual renewal option, so you can buy additional coverage in the future.

• Obtain insurance from a stable insurance company. You want to obtain insurance from a company that is sure to be around for the long term.

• Make sure the policy terms are reasonable. Many people choose a benefit period of three years to cover the average nursing home stay. However, due to the substantial costs associated with long-term care, you may want to select a longer period. Benefits should be paid in as many situations as possible, including skilled care, intermediate care, custodial care, home health care, and adult day care. Many people prefer to remain at home for as long as possible, so make sure that the policy covers a wide range of home services. Review the waiting period carefully to ensure a good balance between premium costs and out-of-pocket costs.

• Review carefully the level of assistance needed to qualify for benefits. Typically, benefits are paid when you are unable to perform two of six activities of daily living, including bathing, eating, using the bathroom, moving back and forth from a chair to a bed, and remaining continent. Typically, benefits are also triggered when a cognitive impairment, such as Alzheimer's disease, requires substantial supervision.

• Determine how benefits are paid. Some policies pay a set daily amount, regardless of your actual costs. This may be a good alternative if you are staying at home and want to compensate a friend or family member for helping you. Other policies will only pay your actual out-of-pocket expenses up to a daily limit or may only pay reasonable and customary costs. Find out how you prove you're entitled to benefits. Some plans require an in-house doctor to review your health, while other plans allow your own doctor's review.

• Review new policy provisions. Long-term-care policies are relatively new, so policy riders are evolving. Make sure to check out new provisions, such as the ability to combine a life insurance and long-term-care policy, an accelerated premium provision that allows you to stop making premiums after a certain number of years, or a provision that returns premiums if you die without using benefits. Also look into partnership policies, which allow you to qualify for Medicaid after exhausting the policy's benefit while keeping more assets than normally allowed by Medicaid.

• Consider sharing a policy with your spouse. Some companies now offer policies that allow spouses to share the policy, which can operate in several ways. Spouses may take out separate policies, with a rider allowing the spouses to use each other's unused benefits. Another alternative is to purchase one policy that both spouses can use. A third alternative gives each spouse a specified amount of benefits plus a third amount that can be drawn on by each spouse.

• Check the policy's tax status. A qualified policy allows you to deduct a certain percentage of the premium, depending on your age, as a medical expense on your tax return. Medical expenses are deductible to the extent they exceed 7.5% of your adjusted gross income. Also, payouts from qualified policies are received free from federal income taxes.