Converting black money to white

Like every body else, I have relatives who are agents of LIC. You know the kinds who call you up and peddle high-premium insurance policies. I met one such relative during a cousin's marriage. He claimed he could give me any policy without any medical checkup. Not to mention the usual 50-50 split of commission. The commission splitting is very common. I was more intrigued about the "no medical test" part. So I asked how it was possible to do that when LIC clearly needs medical documents for underwriting purpose. He explained to me that he can get medical documents arranged with no difficulties. I was like, "hmmmmm...". What came next was a shocker. He explained to me that most of his clients were businessmen who bought single premium policies - where the one time premium is in lakhs. Mostly as an investment - not for insurance. I advocate term policies to most people. So I was interested to know why many businessmen would buy single premium almost pure investment type policies. My relative explained to me the whole process of how many businessmen convert black money to white. Let's say they have a black money of 1 lakh. They purchase a policy of 1 lakh single premium. Now LIC doesn't care or check about the source of the income. So they issue the policy bond. Now the person can sleep at ease because if Income Tax officials do a raid, they won't find the money. However, there is the problem of the policy bond. That can be found by the IT officials. Solution is simple and ingenious. The businessman would take a loan of a small amount (say, a hundred rupees) from LIC. Now, LIC would take the policy bond as a collateral. So in effect, LIC takes care of the safe-keeping of the policy document. The tenure of the loan will usually match the tenure of the LIC policy. So at the end of term (say, 5 years), the businessman gets back the bond which he then uses to liquidate the original investment. Now this money is white as it is the maturity proceeds of an insurance policy. Since IT officials can only dig through three years of paper, they cannot question on the source of funds of the insurance premium. Neat, isn't it ?
Here I am - suggesting simple things like term insurance and mutual funds. So naive !!!


P.S - This is not an advice or suggestion for an illegal transaction. I pay my taxes and do not endorse anything illegal. Loss of sleep and risks are not an adequate compensation for the gain by tax evasion. Just don't do it.

P.S 2 - The story could be apocryphal. Even if it is true, I am sure the IT department is smart enough to have caught up by now.