You can take out life insurance on a family member if you want too but you must let the family member know about you taking out the life insurance and you must get the family members written permission before you can take out a life insurance policy on that person.
The person you take life insurance out on will have to sign a paper and get medical exams before the life insurance policy will be issued so you'll have to let the person know about the idea of taking out life insurance on them.
The life insurance company doesn't care who pays the life insurance but they must have the persons permission before they can issue the other person the policy for life insurance.