I know that virtual functions have an overhead of dereferencing to call a method. But I guess with modern architectural speed it is almost negligible.
Pay per use (in Bjarne Stroustrup words).
You forget one thing. The overhead is also in memory, that is you add a virtual table and a pointer to that table for each object. Now if you have an object which has significant number of instances expected then it is not negligible. example, million instance equals 4 Mega byte. I agree that for simple application this is not much, but for real time devices such as routers this counts.
Yes, it's because of performance overhead. Virtual methods are called using virtual tables and indirection.
In Java all methods are virtual and the overhead is also present. But, contrary to C++, the JIT compiler profiles the code during run-time and can in-line those methods which don't use this property. So, JVM knows where it's really needed and where not thus freeing You from making the decision on your own.
Java method calls are far more efficient than C++ due to runtime optimization.
What we need is to compile C++ into bytecode and run it on JVM.
There are good reasons for controlling which methods are virtual beyond performance. While I don't actually make most of my methods final in Java, I probably should... unless a method is designed to be overridden, it probably shouldn't be virtual IMO.
Designing for inheritance can be tricky - in particular it means you need to document far more about what might call it and what it might call. Imagine if you have two virtual methods, and one calls the other - that must be documented, otherwise someone could override the "called" method with an implementation which calls the "calling" method, unwittingly creating a stack overflow (or infinite loop if there's tail call optimization). At that point you've then got less flexibility in your implementation - you can't switch it round at a later date.
Note that C# is a similar language to Java in various ways, but chose to make methods non-virtual by default. Some other people aren't keen on this, but I certainly welcome it - and I'd actually prefer that classes were uninheritable by default too.
Basically, it comes down to this advice from Josh Bloch: design for inheritance or prohibit it.