Critical illness insurance can be a jungle: unless the policyholder is, or knows, a medical expert it is nearly impossible to decide on the right policy. The cover, routinely bundled with a life policy, is supposed to ensure a home loan is paid in full or the family has money if there is a serious but non-fatal medical problem. But policy wording can be obscure and specialist, often leading consumers to expect a payout when they don't qualify.

A new website, criticalillnessinsider.com, has been set up to tackle this problem, helping people work out exactly what cover each policy offers, and when it might be expected to payout.

Potential critical illness buyers generally get a broad view of the cover that does not reveal exclusions or precise underwriting definitions. The Association of British Insurers' definition says: "Critical illness cover means cover which pays out on a diagnosis of a listed critical illness. The list of illnesses must include cancer, heart attack and stroke."

Insurers then add conditions, which can include anything from aorta heart graft to traumatic head injury. Some policies list more than 40 medical problems, but some conditions, such as dementia, pre-senile dementia and Alzheimer's, are counted as separate conditions despite virtually identical claim wordings.

Plans also come with small print that, despite the growth of "plain English", requires policyholders to have substantial medical knowledge. Policies do not only vary greatly in what they cover, they also have often baffling definitions that can prevent claims for the "wrong sort" of heart attack – or strokes that are not considered serious enough.

To make matters worse, many plan sellers – often mortgage brokers – don't understand the fine points of each policy. In April 2009 a Financial Services Authority report found "a relatively high level of ignorance and misunderstanding" in consumers, possibly a reflection of what advisers had told them.

"Critical illness is a minefield," says Matt Morris of specialist adviser Lifesearch. "There are up to 20 players in the market with many policies sold by mortgage brokers who are more interested in home loans. Due diligence can be difficult as advisers have to absorb so much information and then communicate it. We think it is clearer to say 'life-threatening' rather than 'critical' illness.

"There's no correlation between higher premiums and policy quality. We know some are better at covering previous conditions while some have a poor or obstructive claims process. Without specialist help, it can be a pure lottery."

"You need a lot of medical knowledge just to understand what is covered," says Alan Lakey, who runs IFA Highclere Financial Services in Hemel Hempstead. He has devoted every spare moment in the past two years to decoding policy documents to find good value.

"The PruProtect plan has 161 different conditions defined. Most have around 40 so comparing is tough. You need to be a medical expert," he says. "Take 'forced ejection fraction', used in measuring heart problems. Some quote 35%, others 40%. Which is more generous? How much difference is there? How can the average person or adviser know? In fact, the lower figure is substantially more serious, so the 35% policy is harder to claim on.

"The severity of prostate cancer is measured by the Gleason Scale. Some pay out on a score of two to six but there has to be either beam implant radiotherapy or prostate removal as well. The trouble here is that Nice guidelines for the NHS say a score under seven requires 'active surveillance' not active treatment so only those with private medical cover could qualify," Lakey says.

Some policies have sections in which it is almost impossible to claim, Lakey has found. "Forresters offers cover for Alzheimer's but only up to age 60. Dementia can hit at younger ages but probably not Alzheimer's specifically. Aviva goes to a more generous 65," he says.

Lakey has decided to use the research he has done, considering premium levels, policy conditions, claims record, number of conditions covered, and his experience of the trustworthiness – or otherwise – of each insurer, as the basis for criticalillnessinsider.com, aimed at helping people choose the right policy for their circumstances. The site is free and without obligation to consumers.

"The single most important element is the potential for a plan to pay the sum assured when the client suffers a critical illness. Obviously the more conditions included, the more likely a claim but it's not anywhere near so simple. Some conditions are far more likely to occur than others and some claim definitions are far more likely to result in a successful claim than others," he says.

Four companies stand out from the rest for quality, says Lakey. They are: Ageas (formerly Fortis), Axa, Bupa and Legal & General. HSBC Life, the policies of which are only sold through the bank, is at the bottom of his list: it covers only five conditions.

'The wrong kind of cancer'

An oncologist told 42-year-old Diana (not her real name), of north London, that she had ovarian cancer.

Any treatment would be long and unpleasant, involving drugs and chemotherapy. As an additional worry, she would have to spend time at home and in hospital, adding a financial burden to her health worries.

But she and her husband had taken out a joint Scottish Provident critical illness and life policy to back their home loan when they bought their house in1999. This promised a payment if she had cancer, a stroke, a heart attack, kidney failure, total permanent disability and many other serious illnesses.

She was told it could help with the costs and loss of earnings a serious illness can bring. The £33-a-month policy over 25 years initially promised to pay £75,000 but it was on a "decreasing term" basis, with the payout reducing as the mortgage was paid off. It was worth £57,000 at the time of her diagnosis.

She finds the episode too painful to talk about but her husband says claiming was difficult. It took four requests to get a claims form: Scottish Provident had sold the policy to Phoenix in 2008, adding to the complications. And when she saw the level of intimate detail the form required, she almost decided not to bother.

The claim turned out to be a waste of time as well as an emotionally draining experience. Phoenix turned her down because it was the wrong sort of cancer. While her oncologist said she had a "serious borderline tumour of the ovary", the insurer refused the claim on the grounds that borderline tumours are "not full-blown cancers". Instead, says Phoenix, they are growths made up of cells that are abnormal and may become cancer if not treated.

Diana's husband told the Observer: "She was diagnosed with a serious cancer. She thought the policy paid out if she had cancer. She has had to endure ghastly treatments.

"But it turned out to be the wrong sort of cancer. Other critical illness insurers have told her financial adviser that they might have paid out so she intends to challenge the insurer."

Phoenix says: "Claims are paid if a medical condition falls within the terms and conditions of the policy. "Sometimes, an initial claim is not covered, but subsequent progress of the condition can later give rise to a new and successful claim. If a customer believes that we have been wrong in rejecting a claim, we steer them towards the Financial Ombudsman Service, whose decisions we will always accept."