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Can I buy a life insurance policy on someone else's life? What is an "insurable interest"?

UPDATED: February 24, 2015

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To prevent people from taking out a life insurance policy on the life of a stranger and then killing them to get the life insurance proceeds, or having life insurance become a gambling device -- "I'll pay you $500 now and if O.J. Simpson dies in the next two years you'll pay me $25,000" -- persons purchasing a policy must have an "insurable interest" in the life of the person being insured.
In dealing with life insurance, an "insurable interest" generally means a substantial interest engendered by love and affection in the case of persons related by blood, and a lawful and substantial economic interest in the continued life of the insured in other cases. People are always considered to have an insurable interest in their own lives, and generally also have an insurable interest in the lives of their spouses and dependents. Business partners may have an insurable interest in each other, and a corporation may have an insurable interest in its employees' lives, particularly key employees.

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