Buyers of long-term-care insurance are reacting to the economic turmoil in just the way many in the insurance industry expected: with thrift and caution.

Most notably, long-term-care insurance purchasers are choosing less benefits, longer elimination periods and policies that cost less, according to an annual study performed by the American Association of Long-Term-Care Insurance (AALTCI).

According to the study, 43% of those who bought long-term-care insurance last year chose initial daily benefit amounts of $149 or less—a low amount by any standard. In 2008, just 37.5% purchased such a low number.

Buyers’ caution is also being conveyed through longer elimination periods, which is the number of days between when an illness or injury begins and when benefit payments kick in. In general, the shorter the elimination period the more expensive the policy is.

Last year, 92.2% of long-term-care insurance buyers selected elimination periods of 90 days or longer, a 6.2 percentage point increase of buyers from a year earlier.

Jesse Slome, executive director of the AALTCI, said that buyers’ willingness to forgo extended benefits to cut costs underlines the impact the economy is having on the industry.

But while LTCI buyers are cutting costs in some areas, they’re showing they are paying more for enhanced future protection. Nearly half (47%) of those who bought long-term-care insurance last year purchased the 5% compound growth factor, an inflation-protection feature that can double or triple the cost of the base plan of insurance protection, Slome said.

“Buyers understand they are protecting future risk and saved in some areas but were willing to pay more for this important option," he said.

Three years is still the most common benefit period, according to the study, with nearly 30% of buyers opting for policies with at least three years of coverage last year. Considering the average nursing home stay is about 2.4 years, this seems appropriate.

Three years ago, the AALTCI looked at policyholders with three-year policies, which cost significantly less than a lifetime or unlimited policy. Of those who had three-year policies, only eight of 100 exhausted their benefits. That means, for 92% of those who bought a three-year policy and went on claim, the three-year policy was sufficient.

For more on this, look for “Long-Term Care Is Taking Off…Really?” in the April issue of Financial Planning and on www.Financial-Planning.com.

Jodi Anatole, a vice president of long-term-care product management at MetLife [MET], said long-term-care providers aren’t ignoring American’s shifting desire for cheaper policies and more protection. With some companies already having dropped their most expensive products, Slome too insists that the market is looking toward more suitable products and bare-bones policies that offer only the most critical benefits.

“There’s going to be a real focus on looking at the features of these policies and determining what’s critical for people to have versus the bells and whistles that don’t add tremendous value but add cost,” Anatole said. “There will be focus on making products that are aligned with the true losses people have and what they need on the back end.” Anatole also expects providers to look at what benefits can be covered under other medical policies, eliminating unnecessary and costly duplications.

So just how much did the average policy-holder pay for long-term-care insurance last year? According to the study, the average buyer aged 45-54 paid $1,900 annually for their coverage.

Buyers of long-term-care insurance are getting older. Nearly three-quarters (73.5%) of those who bought policies last year were at least 55 years old—a 4.5 percentage point increase from a year earlier.

And while the vast majority of purchasers are married, only 54% bought policies that covered both spouses’ lives in 2008, according to the study. Nearly a quarter (24%) of policies bought last year covered only one member of the couple, while singles purchased 22% of the policies sold last year.