The biggest question people have when they start thinking about buying a life insurance policy is – Why buy life insurance at all? Life insurance is a financial planning tool, with two primary reasons to buy it. First, as a financial hedge against your death so that your descendants can pay off any existing debts you might have, or to provide for their financial well-being. The other primary reason to purchase life insurance is as a long-term investment vehicle. And some policies can have characteristics that meet both of these objectives.

There are three basic forms of life insurance: 1) term life; 2) whole life; and 3) universal life. Understanding the differences between these policies – and being able to explain them – is the job of a trained life insurance agent. However, let’s look at the basic differences.

The first two types listed – term and whole life – are only paid out when you die, to whoever is listed on the policy as the beneficiary. Some whole life policies allow you to borrow against the face value, at favorable interest rates, but otherwise, the only one who will see the benefits of these policies will be your heir. A life insurance agent licensed in your state can help you select the right type of policy to meet your goal.

Term policies guarantee a certain premium level for a fixed number of years. The only benefit is the pay out when you die. A whole life policy is set up for the remainder of your life, and at some point, the policy becomes “paid up” meaning no more premium payments are due. These policies are only as good as the insurance company backing them, and a life insurance agent can help you find a company with a sound financial standing.

A universal life policy, however, is an investment, and once you hit a certain age – or in some cases, suffer a catastrophic event – you can start drawing down the value of the policy for your own benefit. These policies are regulated by the Securities and Exchange Commission, as they share many of the same characteristics as a mutual fund, and only someone with the proper federal and state licenses may sell these policies, since they are truly an investment vehicle with the same inherent risks as investing in the stock market.

Choosing life insurance can be made much simpler by drawing on the expertise of a well-qualified and trained life insurance agent. Choosing the right agent, versed in how to best meet your goals for purchasing life insurance can be one of the best financial decisions you make.