What is the primary purpose of buying life insurance in relation to estate taxes?

The primary purpose of buying life insurance in relation to estate taxes is to ensure that there are sufficient proceeds available to cover these taxes after the policyholder passes away. Estate taxes can be significant and may require liquid assets to pay. By having a life insurance policy in place, the beneficiaries receive a death benefit that can be utilized specifically for covering those estate tax obligations. This financial planning strategy helps prevent the need for heirs to liquidate other assets at potentially unfavorable times to cover these tax liabilities, thereby protecting the estate's overall value and ensuring a smoother transfer of wealth to the next generation.

Other options focus on different aspects of financial planning. Providing a living benefit addresses needs while the insured is alive, increasing estate value is not directly related to the function of life insurance in estate tax scenarios, and replacing income for beneficiaries pertains more to income protection rather than estate tax considerations.