When you are looking at purchasing long-term care insurance, you should remember that retirement income is often fixed. It rarely keeps pace with inflation. If you buy too much insurance now, you may not be able to afford the premiums when you are retired.

You need to decide two things: the policy's fixed dollar amount and the length of time your benefits will run. There are four major steps in calculating how much insurance you need to buy.

1. The benefit amount

The benefit amount is the maximum fixed dollar amount your policy will pay for each day of care. This figure is used to determine the policy's total value.

For example, if you purchase a policy that pays $200 a day for three years of care, your total policy value is $219,000.

When looking at a possible benefit amount, call a reputable nursing facility in your area and ask what it charges for residents per day. Your insurance agent should also be able to provide you with the average nursing home cost in your area. Decide how much of your personal income you can afford to spend per day to stay in a nursing home.

The difference between the cost and what you can afford is the benefit amount you need.

However, if you are married, you shouldn't count on contributing any of your fixed income to your nursing home costs. The spouse who does not need care will likely need the entire fixed income to pay for bills and living expenses.

2. Inflation adjustments

Remember, costs go up over time. Increase the benefit amount you have arrived at enough to cover inflation. This is essential when buying long-term care insurance. Be wary of any insurance sales pitches that claim that your policy will keep pace with inflation. No one can predict the medical inflation rate - it has a mind of its own.

You can be assured that even with the best and most expensive inflation adjustments, which usually increase your benefit by 5% a year, the increases in your benefits will not completely cover your increased medical costs.

3. Benefit period

The benefit period is the length of time your policy will pay for covered services. According to the Health Insurance Association of America, the average length of a stay in a nursing home is 2 ½ years. Most people choose a two- or three-year benefit period. The more years you choose, the higher your premiums.

There are policies that offer unlimited benefit periods. Remember, the longer your benefit period, the higher your premiums.

4. Deductible

The deductible is often known as the elimination period. This is the number of days you pay for care before your policy begins your coverage. The standard deductible period is between 20 and 100 days of self-paid care. Some policies have longer waiting periods with lower premiums. However, you will have to pay for any needed care until you reach your deductible. How much you can reasonably afford to pay in premiums depends on your retirement income and assets.