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The devil is in the details. A friend once told me how he felt misled by an offer for balance-protection insurance from his credit-card issuer. He assumed that since he paid his balance in full every month, he wouldn't have to pay a premium for this insurance. But he was charged every month.

You must be familiar with balance-protection insurance, or at least the telemarketing calls about it that you get just as you're about to eat dinner. It's insurance that will make a small monthly payment against your credit-card (or line of credit) balance should you become disabled, lose your job, or have your ability to pay your bills compromised in some other way. If it's a catastrophe, the insurance may pay off all or part of the balance owing. There are differences among providers, but you get the gist.

Generally, the premium is calculated as a percentage of the balance owing, charged on a monthly basis. For example, I called up my credit-card issuer and asked about this insurance. With my issuer, the cost is 94 cents per $100 owing. That works out to 0.94 per cent per month. The agent was quick to point out that if I did not have a balance owing on my statement, there would be no charge. That makes it sound as if you have nothing to worry about if you pay off your credit-card bill in full every month, doesn't it?

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Turns out it does not mean that exactly.

The devil is in the details. Did I mention that already? I wanted to make certain we were on the same page, so I gave him my expectation of how I thought it would work: I pay for things on my credit card throughout the month, get my statement, send in payment for the full amount, and then I shouldn't be subject to this insurance premium?



No. The statement must have a $0 balance (or a credit) when you receive it for no premium to be charged. That means I would have to take the extra step of adding up my receipts and paying off my credit card before the statement was generated to avoid the insurance premium being charged. I can see why so many people get caught out by this.

Now, that's not the end of it. Other issuers may calculate the premium based on the average daily balance on your card throughout the month. Some simply calculate the premium based on the dollar amount owing on your statement date. Also, rates for the insurance vary. The highest I've seen is $1.49 per $100.

The best solution is to ensure you have your finances in order. If you have proper disability insurance protection, life insurance protection and an emergency fund, you'll never need credit-balance protection. If you have the insurance, and you carry a balance, that 18.8-per-cent-interest-rate card you have is more like a 30-per-cent-interest-rate card.

Preet Banerjee is the W Network's money expert and a senior vice-president with Pro-Financial Asset Management. His website is wheredoesallmymoneygo.com

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