Anyone can be the beneficiary of your life insurance — after you purchase the insurance. After you own the insurance, all you need to do is submit a form to change the beneficiary and the insurance company will do it; there’s no person there evaluating whether the beneficiary is appropriate or not.
But, when you buy the insurance, insurance companies are very, very picky about who the beneficiary is. It has something to do with “insurarable interest.” The insurance company is on the hook for big money. If you die they have to pay out. So if you make Frankie the Bookie your beneficiary, what do you think the insurance company’s gonna do, kapisch? Their gonna say “forgetaboutit!”
If you make your best friend Tommy the beneficiary, the insurance company will want to know what Tommy’s economic loss will be if you die. That’s the point: economic loss. If your married with kids there is economic loss if you die. So, your wife is a logical and acceptable beneficiary.
But, what if you want insurance on your mother who rents a home and lives on social security–what’s your economic loss if she dies? Probably none, which is why the life insurance company won’t give her insurance.
There are some situations where someone not related to you may indeed have an economic loss if you weren’t there any more. For example, there are situations where you may be taking care of your mother or father at their later stages in life because they can no longer support themselves. The insurance company would have no problem with the you buying life insurance making your mother or father the beneficiary. Another example is in the event someone loans you a large sum of money. They may want to insure their risk in case something happens to you.
To summarize: when you buy life inurance, the beneficiary has to conform to “insurable interest” rules, which means the beneficiary must have some financial loss if you die. But, once the insurance is in place you can make the beneficiary anyone you want.