Which type of policy would only provide coverage for specific illnesses such as cancer or stroke?

• A. Hospital Indemnity Insurance
• B. Major Medical Insurance
• C. Medical Savings Plan
• D. Dread Disease Insurance

Answer: (D)

This question tests recognition of a policy that covers only a defined set of illnesses. Dread disease insurance, also called critical illness coverage, pays a lump-sum benefit when a diagnosed condition on a specified list occurs—examples typically include cancers, strokes, heart attacks, and similar serious illnesses. The key point is the benefit is a one-time cash payout that the insured can use for any purpose, not reimbursement of ongoing medical bills or hospital costs. This stands in contrast to hospital indemnity insurance, which pays per day in the hospital; major medical insurance, which covers a broad range of medical expenses; and a medical savings plan, which is a savings or account-based arrangement to pay future medical costs. Since dread disease insurance is designed specifically to cover only those listed illnesses, it best fits the description in the question.