Consumers taking out cover should make sure to read the insurance policy document carefully or they may find that their condition is not covered, writes Laura Slattery

Money worries may not be the first thing on peoples' minds when they have just been diagnosed or hospitalised with a serious illness, but financial difficulties can add stress to already emotionally fraught situations.

The last thing anyone wants to discover when they are at their most vulnerable is that the serious illness insurance policy on which they have been paying high premiums for more than a decade won't actually cover them for the particular type of condition they are suffering from.

Exclusions on these policies are common and definitions of certain illnesses are tight.

"The problem is in the name," says Mr John Geraghty, chief executive of LABrokers.ie. "People think that if they have a serious illness they are covered, but the cover is really correctly named specified illness," he says.

Serious illness insurance pays a tax-free lump sum benefit on diagnosis of specified conditions, with the insurance company usually paying up after a 14-day "survival period".

The insurance can be bought on its own, in conjunction with life assurance cover, or as part of a mortgage protection policy.

Companies in the Irish market will list roughly 20-40 insurable conditions on their brochures, although it is just three illnesses - cancer, heart attack and stroke - that account for three-quarters of claims.

"The majority of the main serious illnesses are covered but if someone breaks their leg they might think 'I'm self-employed, I can't work for months, so it's serious', but of course the policy won't pay up for that," says Mr Geraghty.

In fact, people who lose a leg or an arm in an accident will find that their policy won't cover them: most will only pay out if the policyholder loses two limbs, even specifying that the loss must be above a certain joint.

Meanwhile, kidney failure is defined as end-stage renal failure to both kidneys, requiring either a transplant or regular dialysis.

In the case of an angioplasty procedure, some companies specify that two arteries must have narrowed with a percentage blockage of at least 70 per cent, while policyholders with "non-invasive" cancers may also see their claims rejected.

The table shows current premiums for "accelerated" serious illness cover, which is a type of policy that will pay up in the event of either death or a specified illness - whichever occurs first. But consumers should not just pick a policy on price alone, Mr Geraghty says.

Each insurance company covers a different set of conditions and often it is the definition of the illnesses, rather than the number, that makes certain policies the better bet.

"People will look at the policy covering 40 illnesses and think that there's a bigger range on the menu but then, when they sit down to make a claim, they find it's not being served," he explains. "You would have to be pretty close to death by the time you would be able to claim on some of the illnesses included."

One common illness that is excluded on all individual policies is diabetes. Others not always covered are open heart surgery and pre-senile dementia, while some insurers will not cover for Alzheimer's disease over a certain age.

However, the range of illnesses covered has grown since the product was first introduced to the Irish market by Canada Life.

Conditions added to its policy since 1994 include bacterial meningitis, cardiomyopathy, end-stage liver failure and pulmonary artery surgery. Despite some price hikes two years ago, the cost of serious illness has come down over the past 10 years.

Take, for example, a 40-year-old couple, both non-smokers, who want to include serious illness cover as part of their mortgage protection policy.

Only life assurance cover is compulsory for mortgage protection, but this couple feels that, if one of them was to become seriously ill, they may have difficulty meeting the mortgage repayments.

Their mortgage for €250,000 is being repaid over 20 years, so they decide that their accelerated life and serious illness cover will match this amount and term.

Today, the cheapest such policy available will cost €138 a month from Canada Life. In 1994, the same policy cost the equivalent of €212, according to LABrokers.ie.

It is often adding in extras such as hospital cash or surgical cash benefits that bumps up the cost of cover, Mr Geraghty says.

One way to keep premiums lower is to limit the lump sum benefit in the event of a claim.

Financial advisers recommend that people insure themselves for five times their annual salary but this is a rough rule of thumb.

How much people insure themselves for will depend on the number of dependants they have, whether or not their partner is working and what other benefits they would qualify for in the event of illness.

It is important not to overinsure yourself: you may already have enough financial security under monthly income protection payments as part of an employer-sponsored scheme.

There are also State payments such as the Disability Benefit, which is €134.80 per week.

People with young children who buy serious illness policies usually limit the cover to 20 years, by which stage their children will be able to fend for themselves.

Serious illness cover taken out to clear off a mortgage will last for the duration of the loan term. Under a new option introduced by Eagle Star, the benefit does not have to equal the amount borrowed, instead covering just a percentage of the loan. On a mortgage of €200,000, the benefit in the event the borrower is diagnosed with a serious illness might be set at 25 per cent, or €50,000.

Serious illness insurance is "an extra buffer" against financial hardship when the unexpected happens, according to Mr Geraghty, but people who already suffer from certain conditions may find it difficult to get cover.

For example, the only policy available to people with diabetes is the group scheme Irish Life offers to members of the Diabetes Federation of Ireland.

In the case of mortgage cover, people who have a medical history should apply for cover at least five or six weeks ahead of the time they plan to draw down the loan, so that all the necessary medical reports can be completed and they can compare quotes from a few different insurers.

"Don't feel like you are being forced into a corner and have to accept a premium with a loading," says Mr Geraghty.

"Test the water, as companies may have different views of the risk you present."

Consumers should also make sure they have the opportunity to read the policy document in order to avoid any nasty surprises from their hospital bed.