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Critical illness insurance provides payment if you experience a serious illness, such as a heart attack, cancer or stroke. The policies vary in what they cover, but generally pneumonia would not be considered a critical illness.

Some insurance companies bundle critical illness coverage into categories. One category might cover cancer-related conditions, another category could cover heart-related conditions and a third might cover organ transplants, kidney failure or severe burns. You could buy a policy that pays for one category or a policy that covers all three categories.

Policy limits usually run from $10,000 to $1 million and are typically paid out in a lump sum if you suffer a covered critical illness while the policy is in force.

Critical illness insurance helps when you’re seriously ill and your health care expenses exceed your health insurance policy limits. A 2008 study by the American Cancer Society and the Kaiser Family Foundation found that 20 percent of people with health insurance still couldn’t afford cancer therapy. A year of treatment for blood cancers, such as leukemia, reached $1 million in 2008, which would max out the limits of most medical insurance policies, according to the study.

A critical illness insurance payment is typically made in a lump sum, which you can spend any way you please. For example, proceeds from your policy could be used to pay medical bills, purchase home health services or even to pay off your mortgage.

You can buy critical illness insurance on your own as an individual policy, qualify for the coverage as part of workplace benefits or purchase it as a supplement to health insurance or life insurance.

For more, see the basics of critical illness insurance.