Most people can’t afford to buy a gold-plated long-term care insurance policy that offers a large daily benefit and that will continue paying indefinitely. If premiums for this type of Cadillac plan are not in your budget, what should you cut – the daily benefit amount or the number of years of coverage?

Most financial experts advise cutting the length of coverage. This is because if you don’t use the full daily benefit, you don’t lose it. In fact, it can be used to lengthen your period of coverage.

Think of a long-term care insurance policy as a pool of funds for long-term care. So, for instance, a two-year policy paying a daily benefit of $200 is really a $146,000 long-term care fund (365 x 2 x $200). If you draw on the policy at the rate of $100 a day for one year, you will have used $36,500 ($100 x 365), and you will still have $109,500 ($146,000 – $36,500) to pay for future long-term care costs, whether at home, in assisted living, or in a nursing home.

In other words, a four-year policy paying $100 a day in benefits is no different from a one-year policy paying $400 a day in benefits – except that the one-year policy might be better because if you do happen to need expensive short-term care, more of it will be covered.