A critical illness insurance policy generally pays:

Why A is correct

Critical illness insurance is a limited-benefit product that pays a stated lump sum upon first diagnosis of one of the covered conditions, typically including heart attack, stroke, and cancer. The benefit is fixed in the contract and is paid regardless of the actual medical bills or how the insured uses the money, giving the insured cash to cover deductibles, travel, lost income, or other expenses. It is not a reimbursement plan, so the size of the medical bill does not determine the payment. Classifying critical illness as a lump-sum, diagnosis-triggered limited plan falls within the limited-benefit classification content of the general concepts of medical and disability insurance (AH-II.4).

Why the other options are wrong

• B) A daily benefit for each day the insured is confined to a hospital describes hospital confinement indemnity insurance, a different limited product. Critical illness insurance instead pays a lump sum when the insured is diagnosed with one of the covered conditions, regardless of hospitalization.
• C) Reimbursing a percentage of actual medical bills is the design of coinsurance in a major medical plan, not a critical illness benefit. Critical illness pays a stated lump sum on diagnosis, and the payment does not depend on the size of the medical bill.
• D) Critical illness insurance pays on diagnosis of a covered condition while the insured is alive, so death is not a precondition for payment. A death benefit is provided by life insurance or accidental death coverage, not by a critical illness policy.

Memory hook

Critical illness = big lump-sum check on diagnosis, spend it any way you like.