Final answer:
Using dividends to buy one-year term insurance is the most suitable option for Wendy to increase her life insurance coverage at minimal additional cost, allowing her to add coverage when she may need it most without significantly increasing premiums.
Step-by-step explanation:
The most suitable dividend option for Wendy, who wants to increase her life insurance coverage at minimal additional cost, would be to use dividends to buy one-year term insurance (Option A). This option allows her to use the dividends from her whole life participating policy to purchase additional insurance for a set period (one year), which tends to be less expensive than other forms of permanent insurance. It provides her with increased coverage when she needs it the most, during the early years of marriage and family planning, without requiring a significant increase in her premiums.
Other dividend options, such as using dividends to buy paid-up additions (Option B), allowing dividends to accumulate at interest (Option C), or applying dividends against premium payments (Option D), serve different purposes. Paid-up additions increase the death benefit and cash value but might not provide as much immediate coverage as term insurance. Accumulating at interest can serve as a savings account but does not increase coverage. Applying dividends against premiums reduces out-of-pocket expenses but also does not directly increase insurance coverage.