How does life insurance fund a buy-sell agreement when a business partner dies in Ontario?

Life insurance solves the biggest practical problem with a buy-sell agreement: the surviving owners are obligated to buy the deceased's shares, but they need cash to actually do it. A policy is taken out on each owner's life, sized to roughly match the expected value of their ownership stake, so that when one owner dies, the policy pays out and that money funds the purchase — instead of the surviving owners scrambling to find cash, take on debt, or sell business assets under pressure.

Who owns the policy and how the proceeds flow matters and depends on whether the buy-sell is structured as a cross-purchase, where owners buy each other's shares personally, or a corporate redemption, where the company buys back the shares, since that affects who pays the premiums and how the payout is used. There also has to be a genuine insurable interest between the parties for a policy to be valid under Ontario's insurance law. The insurance amount should be reviewed periodically, since a business that grows in value can leave an older policy well short of what's actually needed to fund the buyout.