Your best strategy may be to hedge your bets. You can reduce your premiums by buying a policy that covers only part of the costs of long-term care. But you must be prepared to pay the rest out of pocket.

Until recently, the long-term-care insurance industry focused on selling policies with all the bells and whistles. But higher-than-expected claims have forced companies to significantly increase prices. The biggest hikes have been on policies with long benefit periods, especially those with lifetime benefits.

Now companies are shifting gears, hoping that a hedge-your-bets strategy will appeal to baby-boomers, whose parents are experiencing the long-term-care system firsthand. To make policies more affordable, insurers are rolling out plans with innovative features designed to attract consumers who want to forgo gold-plated coverage but would like some protection for their retirement savings.

Among those boomers are Ken and Nancy Holm, who live in Prairie Village, Kan., near Kansas City. The couple bought coverage last year, after Ken's mother spent three years in a nursing home. She had long-term-care coverage that paid for much of the costs. "The policy simplified everything when my mother-in-law was so sick," says Nancy.

By purchasing their own coverage, Ken, 63, and Nancy, 59, hoped to make life easier for their 28-year-old daughter in the event that they ever needed care for themselves. In addition to nursing-home care, their policy covers assisted living and home-health-care services, which are becoming more widely used than nursing facilities.

How Much Coverage to Buy

You can cut your premiums by buying a policy with a shorter benefit period, a smaller daily benefit or both. Before you make a decision, figure out how much you would be able to afford out of pocket if the need arose. "You don't want to make those decisions in a bubble," says James Ryan, president of Lenox Long Term Care, a broker in New York City.

The policy owned by Nancy and Ken Holm would cover $105 in daily benefits, even though average nursing-home costs in Kansas City currently run $152 a day. (Check your local costs at www.maturemarketinstitute.com, click "Studies.")

Unless you have a family history of Alzheimer's disease, there's little reason to buy a policy with lifetime benefits. The average nursing-home stay lasts just under three years. A 55-year-old buying a John Hancock Custom Care policy with a $200 daily benefit and a 90-day waiting period would pay an annual premium of $2,025 for three years of coverage, compared with $4,458 for unlimited benefits.

Married couples may be better off buying a "shared care" policy instead of two separate policies. The MetLife policy bought by the Holms provides a pool of eight years of coverage. If one spouse needs care for just two years, for example, the other can use the remaining six years.

Shared-care policies generally cost about 10% more than buying two separate policies with the same total years of payouts. But it's cheaper than buying two policies with lifetime benefits. Given the odds that both spouses won't need extended periods of care, this kind of coverage can provide several years of care to both or a lot of care to one.

If you have a family history of long-term illness but can't afford lifetime benefits, you might consider John Hancock's new Leading Edge products. One policy offers a five-year benefit period and an additional $1 million pool of coverage that would be available if you still need benefits after five years.

A 55-year-old who wants a $200 daily benefit can buy this policy for about $3,200 a year compared with $4,458 for a policy with lifetime benefits. But unless you really think you'll need extended coverage, you're better off buying a three-year policy or a shared-care policy.

One area where you don't want to skimp is inflation protection. Without it, your policy might not be worth much if you ever need it. The average cost of one year in a nursing home is now more than $75,000, according to the MetLife Mature Market Institute. If the cost continues to rise by 5% a year, the bill could reach nearly $250,000 in 2030.

Policies with 5% compound inflation protection have kept up with these rising costs. Your premiums remain the same, but the coverage increases every year. However, a policy with this protection costs about twice as much as one without it.

Now some insurers are offering new types of inflation protection that can lower annual premiums. Rather than increasing coverage by an automatic 5% a year, John Hancock, New York Life and others are selling policies that peg yearly increases to the consumer price index.

The premiums on CPI-adjusted policies are about 20% to 25% less than policies sold with the 5% increase. That's because the CPI has only increased by about 2% to 3% in the past few years. But there's a trade-off for these lower premiums: Nursing-home costs usually rise at a faster pace than the CPI. By the time you need care, the disparity could lead to a big shortfall in coverage. Still, the CPI could always end up rising by more than 5% in future yearsÑand your pool of available dollars will be bigger.

You need to be careful if you're considering a policy with inflation adjustments that force up your premium over time. Policies with a "guaranteed-purchase option" do not include an inflation adjustment at first but allow you to adjust for inflation every few years. The premiums initially are much lower than those charged for policies with level premiums, but they could eventually be much bigger.

For example, a 55-year-old who buys a standard New York Life policy with a $150 daily benefit for three years and a 5% inflation adjustment will pay $2,377 a year as long as the person holds the policy. A policy with a guaranteed-purchase option will initially cost $844. Assuming that the policyholder adjusts the benefit every year by 5% for inflation, the annual premium at age 80 would be $9,411.

Premiums of most guaranteed-purchase products are based on the buyer's age when he or she buys the extra coverage-and the price of coverage rises significantly as you get older. A new product sold by New York Life adjusts the premium based on the age of the buyer at the time of original purchase; its eventual premium is lower than what you'd pay for its regular guaranteed-purchase product, but you'll pay a higher initial premium.

Either way, unless you know that you'll be able to afford higher premiums in the future, you're better off sticking to policies with inflation protection that keep premiums level.

When to Buy a Policy

You can reduce your premiums by buying at a younger age. A John Hancock policy that costs a 55-year-old $2,025 a year would cost $4,984 if this person waited another ten years to buy. The higher price takes into account the 5% inflation adjustment to the daily benefit. In addition, insurers charge higher prices to older individuals because of their greater likelihood to need care sooner.

Also, if you wait to buy, you might not be as healthy. "About 50% of the people I see each week either aren't given the coverage they originally applied for, or the rate doubles because of their health, or they're denied coverage outright," says Doug Worman, a long-term-care insurance broker in Audubon, Pa. He recommends buying a policy in your late forties to early fifties.

Diabetes, high cholesterol and blood pressure are often reasons for denials and higher rates. A woman with osteoporosis may have to wait 12 months before getting a policy, so the insurer can see if medications help. Shop around if one insurer rejects you, charges a higher rate or imposes a waiting period.

If your employer offers group coverage, take a look. These policies are usually about 5% cheaper than individual plans. Some group plans will accept you even if you have a chronic condition. If your family history puts you at risk for an illness in the future, a group policy could lock you in.

You'll need your insurer to stick around for a long time, so buy from big players that have sold this coverage for years. Worman works primarily with John Hancock, Genworth, MetLife, Prudential, Mutual of Omaha and Allianz. New York Life sells through its own agents. Prices and coverage nuances vary, so work with a broker who specializes in long-term care and deals with several insurance companies.

To find a broker, check with Long Term Care Financial Partners (www.ltcfp.com; 866-471-4072), which includes long-term-care specialists across the U.S. Also, contact the American Association of Long-Term Care Insurance (www.aaltci.org; 818-597-3227).

Consider buying new features if you bought your policy years ago. The first generation of products did not cover home care and assisted living, and many didn't have inflation protection. If you have an old policy with limited coverage, it's usually better to keep that policy and add a rider, perhaps for inflation protection, if the insurer allows. Or you can buy a second policy to provide extra coverage, maybe another $100 for a daily benefit that includes home health care.

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