People purchase life insurance to provide money for their beneficiaries. When you buy life insurance, however, there are restrictions as to whom you may buy a policy on. You may only purchase an insurance policy on those people whom you have a personal and economic interest in.
You have an unlimited interest in your own life, according to an insurance company. For this reason, you may purchase an unlimited amount of life insurance on your own life, as long as you can pay for it. Your policy may be set up so that anyone you choose is the beneficiary.
Spouse or Relative
A spouse or relative may be named as the insured individual on your policy. Generally, the purchase of insurance will be restricted somewhat on anyone other than your spouse. You will need to show that there is a reason and an economic interest in the life of your relative. For example, a relative who depends on you for income may qualify. You have a high degree of interest in your spouse, so a large amount of life insurance may be purchase on her life. However, the insurance company may set a limit on the amount of insurance you can buy for your spouse.
If you are in business with someone, you may purchase an amount of insurance on your business partner that reflects the value of his portion of the business. This is frequently done as part of a buy/sell agreement. A buy/sell agreement is an agreement made between business partners that stipulates that the other business partner has a right to buy out his partner's share of the business if he dies. The life insurance policy provides the money to do so.
Key Person Insurance
A corporation may insure the lives of its top executives. If the executive dies while employed, the business uses the money to find, hire and train new management. This type of policy is normally paid for by the corporation. The beneficiary is, of course, the company. The executive must give the corporation permission to buy the policy.