The Life Insurance Corporation of India, along with the Union Bank of India, has come out with a way to circumvent the service tax issue on premiums.

The 'Union Insured Recurring Deposit Scheme', launched on Tuesday jointly by the Union Bank of India and LIC, is a combination of a recurring deposit together with a term cover.

The depositor gets the full benefit of a term insurance cover equivalent to the maturity value without paying any risk premium.

The best part is, the depositor does not have to pay 10 per cent service tax on the product since the budgetary proposal on service tax does not extend to bank deposits.

The uniqueness of the product is only when the depositor dies does his beneficiary pay a premium for the insurance cover. Otherwise the cost is borne by the bank.

A Union Bank official said upon the death of the depositor, an amount equivalent to the maturity value less the premium amount will be paid the beneficiary.

Many policyholders do not to opt for a term cover because they feel if they do not die during the term of the cover, they would have paid the premium for nothing.

With the passage of the Union Budget on Wednesday, the demand for term covers is expected to come down -- and more so following the proposed service tax on risk premium.

The government can garner about Rs 620 crore (Rs 6.2 billion) from LIC alone in terms of service tax from the existing policies. LIC's premium income in 2003-04 stood at Rs 62,000 crore (Rs 620 billion).

Paying for a term cover only when you need it is the latest product to hit the market.

You can opt for Union Insured Recurring Deposit Scheme by making annual deposits over a minimum period of three years and a maximum seven years. The money will earn 5.5 per cent interest.

"It was felt that private insurance companies would come out with new products, but the IRDA Journal has stated that it is the public sector entities, which are offering unique products," said LIC chairman S B Mathur.

As the life of the depositor is insured during the term of the recurring deposit, his beneficiary will be entitled to the entire maturity amount on the unfortunate demise of the depositor.

This is even if he has not made all the payments.

LIC will reimburse the difference between the maturity value and the amount deposited with interest accrued to the nominee of the bank.

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