Which type of policy covers specific dread diseases under limited risk?

A dread disease policy is specifically designed to provide financial protection for individuals diagnosed with certain catastrophic illnesses, often referred to as "dread diseases." These diseases typically include conditions such as cancer, heart attack, or stroke. The policy pays out a lump sum or provides a set benefit amount for treatment or recovery associated with the specified illnesses, offering limited risk coverage.

This type of policy is distinct from general health insurance policies, which cover a wide range of health-related expenses and conditions. While critical illness policies also provide benefits for a predefined list of serious illnesses, they may not be as focused or limited in scope as dread disease policies. Short-term disability policies, on the other hand, provide income replacement for individuals who are temporarily unable to work due to illness or injury but do not specifically cover dread diseases. Therefore, the clear focus of a dread disease policy on specific high-risk conditions makes it the correct answer.