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SEC Investigates WMA Securities for Insurance Sales Abuses in the Sale of its "Prime Assets Home Loan"
WMA, known to some for its work from home part time sales force, is the subject of an SEC investigation. The firm's insurance product is a variation of the all-too-familiar vanishing premium policy, which defrauded millions of policy holders in the 1980s.
Called the "Prime Assets Home Loan", this "loan" includes the purchase of a variable universal life insurance policy. Your premiums pay for the policy, and that supposedly pays off your mortgage by building up enough cash over time through stock market investments.
The problem is that the policy must earn at least 12% every year for it to work. That just is not certain, let alone guaranteed (since 1926, the market has returned an average of 11% per year).
What happens to the policy when investors do not receive 12% per year every year? First, they will have to look to other sources of money to pay their mortgage. Second, they will have to decide whether to keep paying premiums on their insurance policy - not an inexpensive proposition - or let it lapse, in which case they will owe tax on the gain.
One commentator calls this "Catch 22" a "perpetual loop of debt". And at least one group, Northwestern Mutual Life Insurance Co., has criticized the product and warned its agents to steer clear of it.
Source: Crain's Investment News, January 17, 2000
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