For many people, a participating whole life insurance policy represents a very safe, very stable investment vehicle (while the insurance provides valuable financial protection). Many people who own whole life policies experience solid returns from them, and whole life insurance is widely considered in the industry to be one of the safest forms of investment. The dividend rate is responsive to market interest rates (when rates rise the insurance company makes more money and dividends rise). There are also tax advantages to dividend payments, because they are classified by the IRS as a return of premium rather than a source of income and therefore they are not taxed. The cash value in your life insurance policy is further protected both by the total assets of the life insurance company, as well as your State’s insurance regulations (up to a certain dollar amount).
When you account for the safety, stability, and tax advantages, a participating policy is often the best choice for many people who are not best suited for term life insurance.