17 Free New Mexico Life & Health Practice Questions: Group Health, Specialized Health Insurance and Taxation (2026)

Question 1 (Chapter 8)

A New Mexico producer wants to sell long-term care insurance. According to PSI's Candidate Information Bulletin and New Mexico requirements, what must the producer complete before selling, soliciting, or negotiating long-term care insurance?

• A) A 4-hour annuity training course approved by OSI.
• B) A 10-hour Medicare supplement training course.
• C) No special training is required beyond the standard producer license.
• D) An 8-hour approved long-term care training course.

Question 2 (Chapter 8)

A New Mexico employer sponsors a group health plan. An employee is covered under both this plan and their spouse's group plan. The employee incurs a $5,000 covered medical expense. The primary plan pays $4,000. The secondary plan has a $1,000 deductible that has not been met. Under standard Coordination of Benefits (COB) rules, how much will the secondary plan pay?

• A) $0
• B) $5,000
• C) $4,000
• D) $1,000

Question 3 (Chapter 8)

A New Mexico employer provides group disability income insurance to employees. The employer pays 100% of the premiums. An employee becomes disabled and receives $3,000 per month in benefits. How are these benefits taxed to the employee?

• A) The benefits are fully taxable as ordinary income.
• B) The benefits are entirely tax-free because they are for disability.
• C) The benefits are taxable only to the extent they exceed the employee's basis.
• D) The benefits are partially tax-free based on the ratio of employee/employer premium payments.

Question 4 (Chapter 8)

A New Mexico resident purchases a Medicare Supplement (Medigap) policy. The policy is delivered on October 1. The policyholder examines the policy and decides to return it on October 28. Under NMSA 59A-24A-10, what is the policyholder's right?

• A) The policyholder may return the policy within 10 days of delivery for a full refund.
• B) The policyholder may return the policy within 30 days, but only if a specific reason for dissatisfaction is provided.
• C) The policyholder may return the policy within 30 days of delivery for a full premium refund.
• D) The policyholder has no right to return the policy because the free-look period applies only to long-term care policies.

Question 5 (Chapter 8)

A New Mexico small business with 40 eligible full-time employees establishes a contributory group health plan where employees pay 30% of the premium through payroll deduction. Under standard group health underwriting guidelines, what is the minimum number of eligible employees who must enroll for the insurer to issue the plan?

• A) 30 employees (75%)
• B) 20 employees (50%)
• C) 36 employees (90%)
• D) 40 employees (100%)

Question 6 (Chapter 8)

A New Mexico company with 35 employees experiences a COBRA qualifying event when an employee resigns. Under federal COBRA regulations, within how many days must the employer notify the group plan administrator, and how many days does the plan administrator then have to send the election notice to the qualified beneficiary?

• A) Employer has 30 days; plan administrator has 14 days.
• B) Employer has 14 days; plan administrator has 14 days.
• C) Employer has 30 days; plan administrator has 30 days.
• D) Employer has 60 days; plan administrator has 30 days.

Question 7 (Chapter 8)

An 82-year-old New Mexico resident applies for Medicaid long-term care assistance to help pay for nursing home care. When evaluating her financial eligibility, the state Medicaid agency reviews all asset transfers she made prior to her application. What is the standard look-back period for Medicaid asset transfers?

• A) 12 months (1 year)
• B) 36 months (3 years)
• C) 84 months (7 years)
• D) 60 months (5 years)

Question 8 (Chapter 8)

A self-employed New Mexico taxpayer pays $9,000 per year for individual health insurance coverage and incurs $3,000 in out-of-pocket qualified medical expenses. Her Adjusted Gross Income (AGI) is $60,000. When itemizing personal deductions, how are unreimbursed medical expenses treated for federal income tax purposes?

• A) All medical expenses are 100% tax-deductible regardless of AGI.
• B) Medical expenses are never tax-deductible for individual taxpayers.
• C) Medical expenses are deductible only if they exceed 20% of the taxpayer's net worth.
• D) Unreimbursed qualified medical expenses are deductible to the extent they exceed 7.5% of the taxpayer's AGI.

Question 9 (Chapter 8)

A New Mexico resident surrenders his non-MEC whole life insurance policy after paying $50,000 in total net premiums over 20 years. The total cash surrender value paid to him by the insurer is $70,000. How is this payout taxed for federal income tax purposes?

• A) The entire $70,000 payout is completely tax-free.
• B) The entire $70,000 payout is taxed as ordinary income.
• C) The $20,000 gain is taxed as a long-term capital gain, and a 10% penalty applies.
• D) $50,000 is received tax-free as a return of cost basis, and the $20,000 gain is taxed as ordinary income.

Question 10 (Chapter 8)

Under New Mexico's long-term care insurance rules (NMSA 59A-23A-6 to 59A-23A-8), what is the maximum preexisting condition look-back period and exclusion period allowed?

• A) 12-month look-back, 12-month exclusion
• B) 6-month look-back, 12-month exclusion
• C) 12-month look-back, 6-month exclusion
• D) 6-month look-back, 6-month exclusion

Question 11 (Chapter 8)

An employee in Rio Rancho wants to establish and make pre-tax contributions to a Health Savings Account (HSA). Which prerequisite must he meet to be eligible for an HSA?

• A) He must be enrolled in a qualifying High Deductible Health Plan (HDHP) and have no other non-HDHP primary health coverage.
• B) He must be covered under any general broad-based HMO plan.
• C) He must be eligible for Medicare Part A and Part B.
• D) He must be enrolled in a Flexible Spending Account with a balance over $5,000.

Question 12 (Chapter 8)

An individual age 62 owns a non-qualified deferred annuity with a current contract value of $80,000, consisting of $50,000 in principal contributions (cost basis) and $30,000 in accumulated interest earnings. He takes a partial surrender of $20,000. How is this partial surrender taxed under federal law?

• A) The entire $20,000 is tax-free as a return of principal (FIFO).
• B) The entire $20,000 is taxed as ordinary income because annuity withdrawals are taxed on a LIFO (earnings-first) basis.
• C) Only 50% ($10,000) is taxed as capital gains.
• D) The entire amount is subject to a mandatory 20% IRS penalty fee regardless of age.

Question 13 (Chapter 8)

A municipal employee in Santa Fe participates in a Healthcare Flexible Spending Account (FSA) through his employer's cafeteria plan. At the end of the plan year, he has $400 of unspent FSA funds remaining. Under federal IRS regulations governing FSAs, what options may the employer's plan incorporate regarding leftover funds?

• A) The plan may offer either a carryover of unused funds up to the IRS annual limit into the next plan year OR a grace period of up to 2.5 months to incur expenses, but not both.
• B) The plan must refund the $400 in cash directly to the employee as taxable salary.
• C) The plan must automatically deposit the funds into an individual HSA.
• D) The employee automatically forfeits 100% of unused funds with no option for carryover or grace period under any circumstances.

Question 14 (Chapter 8)

An employer in Albuquerque with 50 employees experiences two separate qualifying events: Employee X resigns to take another job, while Employee Y gets divorced, causing Y's spouse to lose coverage under the group plan. What are the maximum COBRA continuation periods available to Employee X and Employee Y's ex-spouse, respectively?

• A) Employee X: 18 months; Ex-spouse: 36 months.
• B) Employee X: 36 months; Ex-spouse: 18 months.
• C) Employee X: 29 months; Ex-spouse: 18 months.
• D) Employee X: 12 months; Ex-spouse: 24 months.

Question 15 (Chapter 8)

A New Mexico retiree holding a standardized Medigap Plan G travels abroad to Europe and suffers an unexpected medical emergency requiring immediate hospitalization. How does the foreign travel emergency benefit operate under standardized Medigap plans that offer it (such as Plan G)?

• A) It pays 100% of all emergency costs abroad up to an unlimited lifetime maximum.
• B) It pays 80% of covered emergency care costs incurred during the first 60 days of a trip, after a $250 annual deductible, up to a $50,000 lifetime maximum.
• C) It requires a $1,000 deductible and pays 50% of expenses up to a $10,000 annual cap.
• D) Standardized Medigap policies are prohibited from covering foreign medical expenses under any circumstances.

Question 16 (Chapter 8)

A policyholder in Clovis has paid premiums on an individual long-term care insurance policy for 12 years. Due to financial hardship, she can no longer afford the premium payments. Her policy includes a nonforfeiture benefit. What is the primary function of a nonforfeiture benefit in a long-term care policy if the policy lapses due to nonpayment?

• A) It provides a full cash refund of all premiums paid over the 12 years with interest.
• B) It provides paid-up reduced long-term care coverage (such as a Shortened Benefit Period) based on total premiums paid prior to lapse.
• C) It automatically converts the long-term care policy into a whole life insurance policy with an equal death benefit.
• D) It cancels the policy immediately and forfeits all accumulated value to the insurer.

Question 17 (Chapter 8)

An employer in Rio Rancho sponsors a group disability income policy. The employer pays 60% of the premium, and employees pay the remaining 40% using after-tax dollars. An employee becomes disabled and receives a monthly benefit payment of $3,000. What portion of the $3,000 monthly benefit is taxable as ordinary income to the disabled employee?

• A) $1,800 (60% is taxable).
• B) $0 (0% is taxable).
• C) $1,200 (40% is taxable).
• D) $3,000 (100% is taxable).