How does critical illness insurance fit into a business succession plan in Ontario?

Critical illness insurance pays out a lump sum if a business owner is diagnosed with a covered serious illness, which is different from life insurance, triggered by death, or key person insurance, which usually covers the financial impact of losing a key person's contribution to the business whether or not ownership changes. In a succession plan, critical illness coverage is often used to fund a buyout of an owner who becomes seriously ill and can no longer continue running the business, so the remaining owners aren't forced to come up with the purchase price out of pocket or through business debt.

It works well alongside a buy-sell agreement that names a critical illness diagnosis as a triggering event for a buyout, alongside death and disability, so the process for valuing and transferring the ill owner's interest is already agreed rather than negotiated under pressure. Because critical illness policies vary in what conditions they cover and how quickly they pay out, matching the policy's terms to what the buy-sell agreement actually requires matters — a mismatch between the two can leave a funding gap exactly when it's needed. This is worth reviewing with both an insurance advisor and the lawyer drafting the succession documents.