The reason this provision was put into place was so random people cannot purchase life insurance policies for strangers and collect the life insurance payout when the person passes on in death. If you purchase a life insurance policy for yourself, it is often assumed that you have insurable interest and that is why you are purchasing the policy since the individual cannot collect their own life insurance payout when they are deceased.

If you are purchasing life insurance for another individual, most often you will have to prove that you are to be considered insurable interest by the insurance company.

Most life insurance policy companies will require insurable interest and some of the most common examples of insurable interest include children, spouses, parents, business partners and other such groups of people. As time goes on, more and more life insurance policy providers are becoming increasingly liberal and loose in relation to their definitions of insurance interest. However, interest in the individual or whom the life insurance policy is being drafted still needs to be proven.

See more at wikipedia