These agents are paid a commission of about 25% of the premium collected (plus a 40% bonus if the targets are met) Although the practice is illegal, but most agents offer a 10% of the policy premium back to the customer as a kickback. Now this kickback is a big source of money laundering.
If an agent sells all the policies in his name, then after paying the tax and kickbacks, hardly any commission would be left for him to earn his bread. Hence instead of selling the policy in his name, he would sell a part of the policy in a businessman’s name. The businessman would hence use the channel to legalize his black money, the agent is able to reduce his tax burden and the black money gets dissipated to the policy holders who receive kickbacks. A very simple arrangement.
As per LIC website, it has over 10,02,109 agents all across the nation. So its not as small as an operation that it sounds like. If you are still skeptical, ask your broker how come there are so many high profile agents from leading business families and he will spill the beans.