Conceptually, if I brought a business plan to you with the pitch that you would lose money for the first couple of years, and then guarantee to make you money every year for the rest of your life, would you want that on your balance sheet? I would say that is a pretty logical reason to have some as a part of your overall portfolio.
I assume you're talking about the commission fees and expenses with traditional whole life, so just to simplify it I'm gonna say I forfeit the first 3 years of premiums ( if I'm wrong, I apologize). Now with a 20 year term policy, I forfeit 20 years of premiums if I don't die, right?
Here's the difference (again, these aren't exact, I'm using industry standards, I understand that individual rates vary) :
I'm 30, male, in good health. If I have $100/month to spend on life insurance, I go and compare whole life rates and find out that $100 will buy me $125,000 of cash value permanent life insurance.
The same $125,000 in a 20 year term would cost me about $7/month.
$93/month or $1116/year savings for the same death benefit.
Now let's look at the next 20 years (although it usually takes at least 30 for most Whole life products to mature). For the first 3 years, the extra $93/month pays fees and commissions so it earns nothing. After that, the return will average 2.6% per year for whole life, 4.2% for universal life, and 7.4% for the new-and-improved variable life policy that includes mutual funds, according to Consumer Federation of America, Kiplinger's Personal Finance and Fortune magazines. If I die, the death benefit is still $125,000.
$24,000 invested over 20 years, for a maturity value (assuming I get the top of the market) of $40,618.58, if I surrender the policy. Minus penalties, etc. Remember, the investment is completely illiquid.
Term Policy costs $7/ Month. Over the same 20 year period, the cost of the death benefit of $125,000 is $1680.
So what if I take the $93/month savings and invest it on my own.
Same $24,000 invested over 20 years, same $125,000 death benefit, and let's say I just suck as investor and only average 7.4% per year. My Maturity value is $50,868.89. No surrender fees, no penalties, and the investment is liquid.