For frail older people, home care can be a godsend, providing personal care and help with shopping and cooking while preserving independence. But only the most fortunate can afford it out of pocket, and the premiums charged by insurance companies -which increasingly offer home care as optional coverage in a nursing home policy -can run $2,500 annually for an 80-year-old. Someone in bad health or older than 84 may not be able to buy coverage at all.

No wonder a new breed of home-care coverage -- relatively affordable service contracts that kick in as needed and are sold to anyone -- is finding eager customers. The plans typically guarantee in-home services of an aide up to 24 hours a day for as long as a year, at a rate far below the usual $7 to $8 an hour. There is an up-front "service fee" that can exceed $6,000 and an annual membership fee of several hundred dollars. When members use the service, their cost is limited to a copayment of $15 to $85 a day, depending on the number of hours and whether the elderly individual is ambulatory. The oldest company in the business, four-year-old Retired Home Owners Association of Simi Valley, Calif., quickly spawned near clones like Independent Seniors Association and Vanguard Assisted Care. An ambulatory RHO member who wants 24-hour care for a year pays an effective hourly rate of $2.25, a bargain indeed.

Troubling tactics. RHO has recently expanded into Arizona, made a foray into Massachusetts and is now trying to get off the ground in Ohio. But some state and local law enforcement officials, and advocates for the elderly like California's state-funded Health Insurance Counseling and Advocacy Program have reservations. Sales representatives go door to door, often targeting retirement communities. "Older people are especially vulnerable to high-pressure sales," says Susan Gosselin, a HICAP advocate. Using a hidden camera, the syndicated TV show "American Journal" recently caught an RHO saleswoman talking an elderly Arizona woman into a contract by showing her news stories of nursing homes where aides allegedly abused residents. RHO says it doesn't condone such sales tactics.

Once signed up, seniors will sacrifice care and thousand's of dollars if the firms fold, though consumer advocates have received no such reports so far. The firms say they set aside part of their receipts in a reserve fund - 25 percent in RHO's case - against the future cost of care. But RHO and its imitators are not insurance companies, so the regulatory protection that insurance customers automatically receive is absent. No rating agency or government authority scrutinizes the nature or adequacy of the companies' reserves. And the firms don't pay into a state-run guarantee fund, as insurers do, that covers policyholders should the company be unable to meet its obligations. As RHO founder Michael Cleary, a former insurance agent, told U.S. News, seniors "are making a bet with their money." RHO's sales pitches omit that point.

Moreover, unlike the 30-day free-look period during which purchasers of long-term care insurance policies can get their money back in many states, these firms, typically will make refunds only within three days of application. A change of heart can be costly, Two weeks after giving Cleary $3,820 in July against an up-front fee and annual dues of $7,Q45, George and Almeda Ball, an 84-year-old couple living in Irvine, Calif., wanted to back out. A small-claims-court judge ruled in their favor in December, but RHO hasn't yet refunded the money.

Massachusetts considers these firms to be selling insurance without a license, a criminal activity. Late last summer, RHO agreed to stop selling memberships in the state but didn't make refunds until just before the state attorney general sued. And last September, the district attorney of Orange County, Calif., sued Vanguard Assisted Care for false and misleading advertising. Among other things, the prosecutor alleges that Vanguard didn't tell prospects until after they had signed up that it could raise their copayments. The judge in the case wants Vanguard to increase its reserves and to appoint an independent trustee to oversee the funds. Vanguard says it will do so.

Even for those who can afford to buy home-care coverage from an insurance company, that is no answer unless it includes nursing home stays. While home-care-only policies are cheaper, they represent "a parachute with a hole in it," says James Von Bruchhaeuser, a vice president with CNA Insurance, which sold home-care-only policies for five years until just recently but now sells only policies that include nursing home coverage. Older people want to believe that buying a home-care policy means they will never have to go to a nursing home -- an act of faith encouraged by some unscrupulous sales representatives. Such policies rarely pay enough for the round- the-clock care that might be needed for an elderly person whose mental or physical condition deteriorates badly. For instance, a policy might typically pay home care benefits of $50 or $100 a day, nowhere near enough for someone who needs skilled help. A nursing home may be the ultimate destination anyway, and a stand-alone home-care policy won't cover that, "People could pay for something, for a long time and then get nothing out of it," says Bruchhaeuser. Even marketers of stand-alone policies agree this risk exists. "It's a roll of the dice," says Herb Schwartz, head of the Schwartz Group, a Bellevue, Wash., firm that markets a stand-alone home care policy issued by Time Insurance of Milwaukee.

Expert advice. Many seniors would be better off setting money aside and using it to pay for home care when the need arises, says consumer advocate James Firman, president of Washington, D.C.- based United Seniors Health Cooperative. To ensure decent care, families might hire an independent geriatric-care manager, typically a social worker or nurse who has gone into business and knows the ropes of arranging services for the elderly. The National Association of Professional Geriatric Care Managers provides referrals to its members (655 N. Alvernon Way, Suite 108, Tucson, AZ 85711), as does Aging Network Services, a for-profit network of social workers (4400 East-West High- way, Suite 907, Bethesda, MD 20814). An assessment runs about $300. Once care is arranged--perhaps using low-cost social services such as Meals on Wheels and an $8-an-hour aide--the manager's services might be needed once every couple of weeks for an hour at an hourly rate of $30 to $85. These elder-care entrepreneurs can often react more quickly than a stretched-thin public agency and are particularly useful for children who need help overseeing the care of a parent living far away.

Inevitably, elderly people who need paid help will run up a tab of many thousands of dollars. Medicaid will take over only when the senior is nearly indigent and usually pays only for nursing home care, President Clinton's health care reform package, however, increases home care benefits, with costs to the individual based on need. That would allow more elderly people to remain in their homes for the rest of their days.