17 Free New Mexico Life & Health Practice Questions: Life, Accident and Health Insurance Basics (2026)
How to Use This Life, Accident and Health Basics Set
Life, Accident and Health Insurance Basics is the largest single section of the outline: 16% of the exam, or 24 of the 150 scored items. Chapter 3 of the LanePrep course covers it, and it is the base that the policy-type, provision and health sections build on.
These 17 questions come from LanePrep's New Mexico L&H quiz bank and follow three areas: what an applicant says and how the underwriter checks it, the vocabulary of loss and need, and the business and family uses of life insurance, including buy-sell agreements and executive bonus plans. Each question has a "Show answer & explanation" control, so commit to an answer first.
Ask who owns, who pays and who benefits. Business-insurance questions turn on those three roles, and the wrong options usually swap two of them.
Practice Questions 1-6: Business Need, Application Statements and Underwriting Sources
A key person's death creates a business need, and an applicant's honest but inaccurate answer tests what a statement legally is. Two questions then separate the inspection report from the Medical Information Bureau (MIB); the Social Security blackout period and the correction of a signed application close the block.
Question 1 (Chapter 3)
A small business owner, Mr. Henderson, wants to ensure that if his top sales executive, Sarah, were to pass away, the business would have funds to cover the financial loss and the costs associated with finding and training a replacement. What type of life insurance would best suit Mr. Henderson's business needs?
- A) Buy-sell agreement funding
- B) Key person insurance
- C) Executive bonus plan
- D) Group life insurance
Show answer & explanation
Answer: B
Key person insurance is designed to indemnify a business for the financial loss incurred due to the death or disability of an essential employee whose skills, knowledge, or experience are critical to the company's operations. Sarah, as the top sales executive, fits this description. Buy-sell agreement funding (A) is used to finance the buyout of a deceased owner's share, an executive bonus plan (C) is a form of employee compensation, and group life insurance (D) provides coverage for a group of employees, none of which directly address the business's loss from a critical employee's death.
Question 2 (Chapter 3)
An applicant for a life insurance policy states on the application that they are a non-smoker, which is true to the best of their knowledge. However, they occasionally smoke cigars at social gatherings, which they do not consider 'smoking.' This statement would be considered a(n):
- A) Representation
- B) Warranty
- C) Concealment
- D) Material misrepresentation
Show answer & explanation
Answer: A
A representation is a statement made by the applicant that is believed to be true to the best of their knowledge and belief. It is not guaranteed to be absolutely true. In this scenario, the applicant genuinely believes they are a non-smoker, even though their occasional cigar use might be considered smoking by the insurer. A warranty (B) is a statement guaranteed to be true. Concealment (C) is the intentional withholding of material information. A material misrepresentation (D) is a false statement that is significant enough to influence the insurer's decision, but in this case, the applicant's statement is made in good faith, even if it could be interpreted differently by the insurer.
Question 3 (Chapter 3)
During the underwriting process for a life insurance policy, an underwriter discovers that the applicant has a history of multiple severe traffic violations and reckless driving incidents. Which source of underwriting information would most likely reveal this type of information?
- A) Medical Information Bureau (MIB) report
- B) Attending Physician's Report (APR)
- C) Agent's (Producer's) report
- D) Inspection report
Show answer & explanation
Answer: D
An inspection report provides information about the applicant's general character, finances, hobbies, and habits, often including details about driving records, criminal history, or hazardous activities. The MIB (A) primarily shares medical information. An APR (B) focuses on medical history from a doctor. The Agent's report (C) provides the producer's observations but might not contain detailed records of traffic violations unless the applicant disclosed them directly.
Question 4 (Chapter 3)
Which of the following best describes the purpose of the Medical Information Bureau (MIB) in the underwriting process?
- A) To provide insurers with a centralized database of applicant medical information to detect fraud and misrepresentation.
- B) To conduct physical medical examinations of applicants.
- C) To gather information on an applicant's financial background and lifestyle.
- D) To offer medical advice to insurers regarding complex health conditions.
Show answer & explanation
Answer: A
The Medical Information Bureau (MIB) is a non-profit organization that maintains a database of medical information on applicants for life and health insurance. Its primary purpose is to help member insurers detect fraud, misrepresentation, and omissions on applications by sharing coded information about previous applications and medical conditions. It does not conduct medical exams (B), gather financial/lifestyle information (C - that's an inspection report), or offer medical advice (D).
Question 5 (Chapter 3)
During a financial planning session, a client identifies a period where their spouse will no longer receive Social Security survivor benefits because the youngest child has reached age 16, but the spouse is not yet old enough to receive retirement benefits. In insurance planning, what is this period called?
- A) The Blackout Period
- B) The Elimination Period
- C) The Dependency Period
- D) The Probationary Period
Show answer & explanation
Answer: A
The 'Blackout Period' is the time during which Social Security survivor benefits are not paid to a surviving spouse. It begins when the youngest child reaches age 16 and ends when the spouse reaches the age for retirement benefits (usually 60).
Question 6 (Chapter 3)
A producer is completing an application with a client. The client realizes they made a mistake regarding their date of birth after the application is signed. What is the correct procedure for the producer to follow?
- A) Use white-out to correct the error and initial it.
- B) The producer should correct the error and sign their own name to verify the change.
- C) Submit the application as is and wait for the underwriter to catch it.
- D) Cross out the error, write the correct info, and have the applicant initial the change.
Show answer & explanation
Answer: D
Producers should never use correction fluid. The correct method is to draw a line through the error, insert the correct information, and have the applicant initial the change to ensure they are aware of the modification.
Get the 25-question sample set by email
Want a full-exam practice set to study offline? Drop your email — we'll send 25 questions across every content area, each with the answer and explanation.
No spam. Just the questions and one optional follow-up.
Practice Questions 7-12: Perils, Sales Approaches, Insurable Interest and Business Plans
This block separates perils from hazards, the needs approach from human life value, and the start-of-policy rule for insurable interest. Entity buy-sell funding, the expense loading in a premium and the owner of an executive bonus policy finish it.
Question 7 (Chapter 3)
In the context of Accident and Health insurance, which of the following is considered a 'Peril'?
- A) Smoking cigarettes
- B) A slippery floor
- C) Driving too fast
- D) Sickness
Show answer & explanation
Answer: D
A peril is the cause of loss. In health insurance, the two primary perils are accidental injury and sickness. Smoking or a slippery floor are 'hazards' (conditions that increase the likelihood of a loss).
Question 8 (Chapter 3)
Which of the following is a primary difference between the 'Needs Approach' and the 'Human Life Value Approach'?
- A) The Needs Approach is only used for health insurance.
- B) The Human Life Value approach is based on the applicant's current net worth.
- C) The Needs Approach considers specific financial goals like debt payoff and emergency funds.
- D) The Human Life Value approach is required by New Mexico law for all sales.
Show answer & explanation
Answer: C
The Needs Approach is more common today because it looks at specific line-item needs (mortgage, education, final expenses), whereas Human Life Value is a mathematical calculation of future earnings potential.
Question 9 (Chapter 3)
A business owner in Las Cruces purchases a life insurance policy on a key manager who has proprietary knowledge of the company's software. Three years later, the manager resigns to work for a competitor. If the manager dies shortly after resigning, and the business owner has continued to pay the premiums, how will the insurer likely handle the claim?
- A) The claim will be denied because insurable interest must exist at the time of death.
- B) The claim will be paid to the manager's estate because the business relationship ended.
- C) The claim will be denied because the manager now works for a competitor, creating a moral hazard.
- D) The claim will be paid to the business owner because insurable interest is only required at the inception of the policy.
Show answer & explanation
Answer: D
In life insurance, insurable interest must exist at the time of application (inception). It does not need to exist at the time of the loss (death). Since the business owner had a valid interest when the policy was issued and kept the policy in force, they are entitled to the death benefit.
Question 10 (Chapter 3)
A small engineering firm in Santa Fe has five equal partners. They want to set up an 'Entity Plan' Buy-Sell agreement. How many life insurance policies must the business entity purchase to fund this agreement?
- A) 1
- B) 20
- C) 25
- D) 5
Show answer & explanation
Answer: D
In an Entity Plan, the business itself (the entity) purchases one policy on each partner. With five partners, five policies are needed. (A Cross-Purchase plan would require 20 policies: 5 partners x 4 policies each).
Question 11 (Chapter 3)
A life insurance company's 'loading' or 'expense' factor in premium calculation is primarily designed to cover which of the following?
- A) The cost of paying out death claims.
- B) The loss of interest income due to early policy surrenders.
- C) The cost of the Medical Information Bureau (MIB) reports.
- D) Operating costs, producer commissions, and taxes.
Show answer & explanation
Answer: D
The expense factor, also called loading, covers the insurer's overhead, including commissions, administrative salaries, rent, and state premium taxes.
Question 12 (Chapter 3)
A New Mexico producer is explaining an 'Executive Bonus Plan' to a business owner. Who is the owner and beneficiary of the life insurance policy in this type of plan?
- A) The employer owns the policy and is the beneficiary.
- B) The employer owns the policy, but the employee's family is the beneficiary.
- C) The employee owns the policy and names their own beneficiary.
- D) The business entity and the employee are joint owners.
Show answer & explanation
Answer: C
In an Executive Bonus Plan (Section 162 plan), the employee is the owner of the policy. The 'bonus' is the premium paid by the employer on the employee's behalf.
Practice Questions 13-17: Incomplete Applications, Bonus-Plan Tax, Delivery and Underwriting Reports
This block asks what an insurer gives up by issuing a policy on an incomplete application, and how an executive bonus plan is taxed. A delivery-day dilemma when the applicant's health has changed, the definition of a peril and the purpose of an Attending Physician's Report finish the set.
Question 13 (Chapter 3)
If an insurer accepts a life insurance application that has several unanswered questions and issues the policy anyway, what happens if a claim arises later related to those unanswered questions?
- A) The insurer can deny the claim due to concealment.
- B) The insurer is considered to have waived its right to that information and must pay the claim.
- C) The beneficiary must provide the missing information before the claim is paid.
- D) The policy is void from inception (void ab initio).
Show answer & explanation
Answer: B
If an insurer issues a policy based on an incomplete application, it has legally waived its right to the missing information and cannot later use that missing information to deny a claim.
Question 14 (Chapter 3)
Under an Executive Bonus Plan (Section 162), a New Mexico employer pays the premiums for a life insurance policy on a vice president. How are these premiums treated for tax purposes?
- A) The employer cannot deduct the premium, and the employee receives it tax-free.
- B) The employer deducts the premium as a business expense, and the employee pays income tax on that amount.
- C) Both the employer and employee share the tax deduction equally.
- D) The premiums are considered a tax-deferred loan to the employee.
Show answer & explanation
Answer: B
In an Executive Bonus Plan, the premium paid by the employer is considered a bonus (taxable income) to the employee. Because it is compensation, the employer can deduct the premium as a business expense.
Question 15 (Chapter 3)
A producer delivers a life insurance policy to an applicant who did NOT pay the initial premium at the time of application. The producer finds that the applicant has developed a chronic cough since the application date. What must the producer do?
- A) Deliver the policy anyway but increase the premium immediately.
- B) Collect the premium and a signed Statement of Good Health.
- C) Refuse to deliver the policy and return it to the insurer for re-underwriting.
- D) Leave the policy with the applicant for a 10-day free look period before collecting money.
Show answer & explanation
Answer: C
If the premium was not paid with the application, the policy is not in force. If the applicant's health has changed before delivery, the producer cannot accept the premium or the Statement of Good Health because the risk has changed. The policy must be returned to the company for further underwriting.
Question 16 (Chapter 3)
In an Accident and Health policy, the term 'Peril' refers to:
- A) The financial consequence of an injury.
- B) The cause of a loss, such as an accident or sickness.
- C) A condition that increases the likelihood of a claim.
- D) The maximum benefit payable under the policy.
Show answer & explanation
Answer: B
A peril is the cause of loss (accident or sickness). A hazard is something that increases the chance of that peril occurring (like ice on a sidewalk). A loss is the actual damage (medical bills or lost wages).
Question 17 (Chapter 3)
When an underwriter requests an Attending Physician's Report (APR), the physician's primary role is to:
- A) Recommend whether the insurer should accept or decline the risk.
- B) Provide detailed medical history and treatment records regarding a specific condition.
- C) Perform a new physical exam on behalf of the insurance company.
- D) Verify the applicant's income and employment status.
Show answer & explanation
Answer: B
The APR is requested from the applicant's own doctor to clarify specific medical issues found on the application or MIB report. The doctor provides facts and history; the insurance company's underwriter makes the actual decision (refuting A).
The Mistakes That Cost Marks
Mixing up the underwriting sources. The inspection report covers character, finances, habits and driving. The MIB is a shared database of coded medical information from earlier applications, used to catch omissions and fraud. The Attending Physician's Report comes from the applicant's own doctor and supplies facts and history; the underwriter, not the doctor, makes the decision.
Calling an honest mistake a warranty. Application statements are representations: true to the best of the applicant's knowledge and belief. New Mexico treats them as representations, not warranties. Concealment is the intentional withholding of material information, which is a different thing. If an insurer issues a policy on an application with unanswered questions, it waives its right to that information.
Requiring insurable interest at death. It must exist when the policy is applied for. A key manager who resigns to join a competitor does not end the owner's right to the death benefit.
Miscounting buy-sell policies and misplacing the bonus-plan roles. In an entity plan the business buys one policy on each partner, so five partners mean five policies; a cross-purchase plan with five partners needs 20. In an executive bonus plan the employee owns the policy and names the beneficiary, the premium is taxable bonus income to the employee, and the employer deducts it.
Mishandling the paperwork. Never use correction fluid. Cross out the error, write the correct information and have the applicant initial the change. And if the premium was not paid with the application and the applicant's health has changed by delivery, the producer does not deliver the policy; it goes back to the insurer for re-underwriting.
Your Next Step
These basics come back in every later chapter, so hear them as well as read them. Chapter 1 of LanePrep's New Mexico Life & Health course is free, and chapter 3 covers life, accident and health basics in audio. Then continue with the types of life insurance policies set.
Every topic set is listed on the free New Mexico Life & Health practice questions page, and the life exam practice page goes deeper on the life side.
Question counts and content weighting come from the PSI New Mexico examination content outline effective July 1, 2026.
Free: 25 New Mexico L&H practice questions
Liked this article? Get 25 exam-style questions emailed to you — with full answer explanations, no credit card. Closest thing to studying offline.
No spam. Just the questions and one optional follow-up.
Study this topic with LanePrep
Listen to these audio chapters on your commute — no screen required.
Related Articles
How to Pass the New Mexico Life and Health Insurance Exam on the First Try (2026)
10 min read
How Much Does a New Mexico Life and Health Insurance License Cost? (2026 Fees)
6 min read
25 Free New Mexico Life & Health Exam Practice Questions (2026)
25 min read
17 Free New Mexico Life Insurance Exam Practice Questions (2026)
17 min read
Is the New Mexico Life & Health Exam Hard? Pass Rates and Difficulty (2026)
5 min read
17 Free New Mexico Life & Health Practice Questions: Federal Law and General Insurance Concepts (2026)
14 min read
17 Free New Mexico Life & Health Practice Questions: Types of Life Insurance Policies (2026)
14 min read