The Fraud
Murder for profit sounds movie script-ish but it's done. It is assumed that many deaths termed accidental or suicides are actually murders for profit -- but nobody, of course, can prove how many get away with this.
And yes, a stranger can indeed insure your life -- not legally but it's certainly done. Phony death certificates are easily manufactured. It's illegal these days for a funeral home to mail certificates lest they fall into fraudster hands.
The Flaw
Agents selling life contracts can be in collusion with the fraudster or perhaps just sloppy in documenting the veracity of the application. Small death claims are rarely contested, so if the fraudsters are not too greedy, they might just get away with false death claims.
The Fix
Diligent follow-up of even minimally suspicious claims would catch the amateur fraudsters. Any offshore deaths should be considered suspicious. Computer programs can sometimes catch duplicated addresses or Social Security numbers when a crook becomes sloppy and reuses them.