When purchasing a life insurance policy on somebody other than yourself, there is really just one requirement that needs to be met. That is one of insurable interest, which basically means it is in your best interest for the person to remain alive. Your interest in the person remaining alive can be for emotional or monetary reasons.
Insurable Interest of Family
Purchasing life insurance on immediate family members such as a spouse, child, parent, sibling, grandparent or grandchild is typically accepted on grounds of insurable interest. More distant relatives such as nieces and nephews or aunts and uncles do not automatically create an insurable interest. Unmarried couples may be able to prove insurable interest through proving joint assets and wills. Some states recognize the insurable interest of engaged couples.
Insurable Interest of Creditors
Creditors are deemed to have an insurable interest in a person who owes them money and are allowed to take out life insurance up to the amount they are owed. Creditors also need the consent of the person to be insured before purchasing the life insurance policy.
Insurable Interest of Business Relationships
The business world gives way to insurable interest, if it can be proved it's in the best interest of the life insurance purchaser that the insured survive. These can include business partners, major stockholders or key employees of a company.