17 Free New Mexico Life & Health Practice Questions: Life Insurance Policy Provisions, Options and Riders (2026)
How to Use This Policy Provisions and Riders Set
Life Insurance Policy Provisions, Options, and Riders is 13% of the exam, or 19 of the 150 scored items, the second-largest section after Life, Accident and Health Insurance Basics. Here the contract is read clause by clause: who can be named as beneficiary and how proceeds are paid, what the owner can do with cash value, which riders add benefits, and the New Mexico rules that attach at the start of a policy and on replacement.
These 17 questions come from LanePrep's New Mexico L&H quiz bank and follow three areas: the rules New Mexico attaches to a policy, rider and beneficiary mechanics, and the settlement and nonforfeiture options. Each question has a "Show answer & explanation" control, so commit to an answer first.
Ask whether the question wants the New Mexico rule or the national rule of thumb. This set opens with a free look question whose New Mexico answer differs from the usual shortcut.
Practice Questions 1-6: Free Look, Beneficiary Classes, Policy Loans, Living Benefits and Replacement
New Mexico's position on the free look comes first, because it is the answer most likely to differ from the shortcut you may have memorized. The rest of the block covers class beneficiaries, the deferral of policy loans, accelerated benefits, the replacement notice and the fixed-amount settlement option.
Question 1 (Chapter 5)
A consumer in Santa Fe purchases an ordinary individual life insurance policy that is NOT a replacement for an existing policy. Which of the following best describes the 'Right to Examine' (free look) period for this policy under New Mexico law?
- A) The consumer has a mandatory 10-day statutory right to return the policy for a full refund.
- B) The consumer has a mandatory 20-day statutory right to return the policy for a full refund.
- C) New Mexico law does not mandate a statutory free look period for ordinary individual life insurance policies.
- D) The consumer has 30 days to return the policy, as required for all life insurance products in New Mexico.
Show answer & explanation
Answer: C
New Mexico has no general statutory free look period for an ordinary individual life insurance policy. A policy may contain one by contract (a 10-day period is common), but the law does not require it for a standard new-issue policy. Thirty-day return periods do exist elsewhere: for a replacement life policy or annuity (by rule, NMAC 13.9.6.10), for long-term care insurance (NMSA 59A-23A-6(E)) and for Medicare supplement insurance (NMSA 59A-24A-10).
Question 2 (Chapter 5)
A policyowner names 'all my children' as beneficiaries of his life insurance policy. This is an example of what type of beneficiary designation?
- A) Individual designation
- B) Revocable designation
- C) Tertiary designation
- D) Class designation
Show answer & explanation
Answer: D
A class designation groups beneficiaries by their relationship to the insured (e.g., 'all my children' or 'all my siblings') rather than naming them individually. This allows the group to include children born after the policy was issued without needing to update the policy name by name.
Question 3 (Chapter 5)
A policyowner requests a cash loan against their whole life policy's value. According to NMSA 59A-20-9, for how long may the insurer legally defer granting this loan (unless the loan is to pay premiums)?
- A) 30 days
- B) 60 days
- C) 1 year
- D) 6 months
Show answer & explanation
Answer: D
NMSA 59A-20-9 allows a life insurer to defer granting a policy loan for up to six months after the application is made, except for loans intended to pay premiums on policies held by the insurer.
Question 4 (Chapter 5)
A policyowner in Silver City is diagnosed with a terminal illness and expected to die within 12 months. They use a provision in their policy to receive 50% of the death benefit now to pay for medical bills. This is known as:
- A) Accelerated (Living) Benefits
- B) A policy loan
- C) A partial surrender
- D) Viatical settlement
Show answer & explanation
Answer: A
Accelerated Benefit (or Living Benefit) riders allow a terminally ill insured to access a portion of the death benefit while still alive. This reduces the final amount paid to beneficiaries but provides immediate funds for the insured.
Question 5 (Chapter 5)
A producer is completing a life insurance application in Hobbs that involves the replacement of an existing policy. According to NMAC 13.9.6.8, when must the producer present and read the 'Notice Regarding Replacement' to the applicant?
- A) Within 30 days after policy delivery.
- B) Only if the applicant requests it in writing.
- C) At the time the first premium is collected, if different from the application date.
- D) No later than at the time of taking the application.
Show answer & explanation
Answer: D
NMAC 13.9.6.8 requires that the producer present to the applicant and read the notice regarding replacement no later than at the time of taking the application. A copy signed by both must be left with the applicant.
Question 6 (Chapter 5)
A widow in Gallup needs exactly $3,000 per month to maintain her standard of living. She chooses to have her husband's life insurance proceeds paid out in this specific monthly amount until the principal and interest are exhausted. This is an example of which settlement option?
- A) Fixed Amount
- B) Fixed Period
- C) Life Income with Period Certain
- D) Joint and Survivor
Show answer & explanation
Answer: A
The Fixed Amount option pays a specific dollar amount chosen by the beneficiary until the funds run out. The duration of payments depends on the size of the death benefit and interest earned.
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Practice Questions 7-12: Rider Exclusions, Minors, Spendthrift Protection and Guaranteed Insurability
Riders add benefits and carry exclusions, and beneficiary questions test who can receive money and who can reach it. Expect the accidental death rider's exclusions, the aviation exclusion, a minor beneficiary, the spendthrift clause, the family term rider and the guaranteed insurability rider.
Question 7 (Chapter 5)
An insured has a life insurance policy with an Accidental Death Rider. The insured dies while participating in a professional high-speed auto race. The insurer denies the double indemnity claim based on policy exclusions. Which of the following is a common exclusion for this rider?
- A) Death resulting from pneumonia
- B) Death resulting from a car accident
- C) Death occurring within 90 days of an accident
- D) Death resulting from hazardous hobbies or occupations
Show answer & explanation
Answer: D
Accidental Death riders typically exclude deaths resulting from self-inflicted injury, war, illegal activities, or hazardous hobbies/occupations (like professional racing).
Question 8 (Chapter 5)
A grandfather in Farmington wants to name his 5-year-old grandson as the sole beneficiary of a $500,000 life insurance policy. What is the most common and practical way to handle this to ensure the funds are managed correctly?
- A) Establish a trust and name the trust as the beneficiary for the minor's benefit.
- B) Name the minor directly, as New Mexico law allows minors to sign for insurance proceeds.
- C) Name the minor's parents as the beneficiaries with a verbal agreement to give the money to the child.
- D) The insurer will automatically hold the funds until the child turns 21.
Show answer & explanation
Answer: A
Minors cannot legally receive or manage large sums of money directly. Establishing a trust or naming a custodian under the Uniform Transfers to Minors Act is the standard procedure.
Question 9 (Chapter 5)
An applicant is a private pilot who frequently flies his own small plane. The insurer issues the life insurance policy but includes a provision stating that the death benefit will not be paid if the insured dies while piloting a non-commercial aircraft. This is an example of a(n):
- A) Hazardous Occupation Rider
- B) War Exclusion
- C) Aviation Exclusion
- D) Nonforfeiture Provision
Show answer & explanation
Answer: C
Aviation exclusions are common for private pilots or those in specialized aviation roles. Commercial airline travel as a passenger is almost always covered.
Question 10 (Chapter 5)
A beneficiary in Las Cruces is concerned that her creditors will seize her life insurance death benefit once it is paid out. The policy contains a Spendthrift Clause. What protection does this clause provide?
- A) It makes the death benefit completely tax-exempt for the beneficiary.
- B) It allows the insurer to withhold the death benefit if the beneficiary has outstanding debts.
- C) It prevents the beneficiary's creditors from attaching the proceeds while they are still held by the insurer.
- D) It prevents the policyowner from changing the beneficiary designation without creditor approval.
Show answer & explanation
Answer: C
The Spendthrift Clause protects life insurance proceeds that have not yet been paid to the beneficiary from the claims of the beneficiary's creditors. It also prevents the beneficiary from assigning or otherwise transferring the proceeds before receiving them. It does not affect taxes or allow the insurer to keep the money.
Question 11 (Chapter 5)
A woman in Hobbs purchases a life insurance policy and adds a 'Family Term Rider.' This rider is designed to provide:
- A) Permanent whole life insurance for the entire family.
- B) Term insurance coverage for both the spouse and children under a single rider.
- C) Level term insurance for the spouse and decreasing term insurance for all children.
- D) A waiver of premium if any family member becomes disabled.
Show answer & explanation
Answer: B
A Family Term Rider combines spouse coverage and children's coverage into one rider attached to the base policy of the primary insured. It is usually term insurance.
Question 12 (Chapter 5)
An insured in Farmington has a Guaranteed Insurability Rider. She just turned 31 and wants to increase her coverage. Which of the following is true regarding this rider?
- A) She can purchase additional coverage at specific ages or major life events (like marriage or birth of a child) without proof of insurability.
- B) She can increase coverage at any time as long as she pays the higher premium.
- C) She can only increase coverage if she passes a new medical exam.
- D) The rider automatically increases her coverage every year based on the CPI.
Show answer & explanation
Answer: A
The Guaranteed Insurability Rider allows the purchase of additional insurance at specified intervals (usually every 3 years or at ages like 25, 28, 31, etc.) or life events without medical evidence. Option D describes a Cost of Living rider.
Practice Questions 13-17: Assignment, Nonforfeiture, Settlement Options and Simultaneous Death
This block asks what happens when a policy is assigned without notice to the insurer and which nonforfeiture option keeps the full face amount. The last three questions cover the fixed-amount settlement option, the common disaster clause and life income with a period certain.
Question 13 (Chapter 5)
An insured in Santa Fe assigns his life insurance policy to a local bank as collateral for a loan but fails to notify the insurance company. The insured dies, and the insurer pays the full death benefit to the named beneficiary. What is the insurer's liability to the bank?
- A) The insurer must pay the bank the loan balance in addition to the beneficiary's payment.
- B) The insurer is not liable to the bank because it was not notified of the assignment in writing.
- C) The insurer must sue the beneficiary to recover the funds for the bank.
- D) The insurer's Certificate of Authority will be revoked for failing to track assignments.
Show answer & explanation
Answer: B
Standard policy provisions state that an assignment is not binding on the insurer until a written notice of the assignment is filed with the insurer's home office. If the insurer pays the beneficiary before receiving notice, they are generally not liable to the assignee.
Question 14 (Chapter 5)
A policyowner in Las Cruces has a whole life policy with a $100,000 face amount and $25,000 in cash value. He decides to stop paying premiums but wants to maintain the full $100,000 death benefit for as long as possible. Which nonforfeiture option will the insurer apply if he makes this specific request?
- A) Reduced Paid-Up Insurance
- B) Extended Term Insurance
- C) Cash Surrender
- D) Accumulation at Interest
Show answer & explanation
Answer: B
Extended Term Insurance uses the policy's cash value to purchase term insurance with the same face amount as the original policy ($100,000) for as long a period as the cash value will buy. Reduced Paid-Up (Option A) would result in a lower face amount but permanent coverage.
Question 15 (Chapter 5)
A beneficiary in Santa Fe is entitled to a $200,000 death benefit. She wants to receive exactly $4,000 per month for as long as the money lasts. Which settlement option has she selected?
- A) Fixed-Period Installments
- B) Life Income with Period Certain
- C) Fixed-Amount Installments
- D) Interest Only
Show answer & explanation
Answer: C
In the Fixed-Amount option, the pay-out amount is specified ($4,000), and the duration of payments depends on the principal and interest. In Fixed-Period (Option A), the timeframe is specified and the amount varies.
Question 16 (Chapter 5)
An insured and his primary beneficiary die in the same plane crash in Silver City. There is no evidence to show who died first. The policy contains a Common Disaster clause. How will the proceeds be distributed?
- A) To the primary beneficiary's estate
- B) To the contingent beneficiary (or the insured's estate if none)
- C) Split 50/50 between both estates
- D) Returned to the insurance company's surplus
Show answer & explanation
Answer: B
Under the Common Disaster clause (and the Uniform Simultaneous Death Act), if it cannot be determined who died first, the law assumes the primary beneficiary died first. This ensures the proceeds go to the contingent beneficiary rather than the primary beneficiary's estate.
Question 17 (Chapter 5)
A beneficiary selects the 'Life Income with 10-Year Period Certain' settlement option. If the beneficiary lives for 25 years after the payments begin, how long will the insurer make payments?
- A) 10 years
- B) 25 years
- C) 15 years
- D) Until the principal is exhausted, regardless of time
Show answer & explanation
Answer: B
Life Income with Period Certain guarantees payments for the life of the beneficiary. The 'Period Certain' (10 years) is simply a minimum guarantee for a secondary beneficiary if the primary dies early. Since the beneficiary lived 25 years, they receive payments for all 25 years.
The Mistakes That Cost Marks
Assuming a 10-, 20- or 30-day free look for every life policy. New Mexico law sets no general statutory free look for an ordinary individual life policy, although a policy may contain one. The 30-day return rights are specific: a replacement life policy or annuity (by rule), long-term care insurance (NMSA 59A-23A-6(E)) and Medicare supplement insurance (NMSA 59A-24A-10).
Getting the New Mexico procedure timing wrong. On a replacement, the producer presents and reads the replacement notice no later than when the application is taken; both sign it and a copy stays with the applicant. An insurer may defer a policy loan for up to six months, except a loan to pay premiums (NMSA 59A-20-9).
Mixing up settlement options. Fixed amount pays a chosen dollar amount until the funds run out; fixed period fixes the time and lets the amount vary. Life income with a period certain pays for life or for the certain period, whichever is longer, so a beneficiary who outlives the period keeps being paid.
Choosing reduced paid-up when the client wants the full face amount. Extended term keeps the original face amount for as long as the cash value will buy. Reduced paid-up keeps coverage for life at a smaller amount.
Forgetting who is protected, and from what. An assignment does not bind the insurer until written notice is filed, so an insurer that paid the beneficiary first is not liable to the assignee. A spendthrift clause shields proceeds still held by the insurer from the beneficiary's creditors. A minor beneficiary calls for a trust or a custodian to receive and manage the money.
Your Next Step
Provisions and riders are mostly definitions, which suit listening. Chapter 1 of LanePrep's New Mexico Life & Health course is free, and chapter 5 covers life provisions, options and riders in audio. Then continue with the annuities and accident and health policy set.
Every topic set is listed on the free New Mexico Life & Health practice questions page, and our difficulty guide explains why the New Mexico-specific rules deserve their own study time.
Question counts and content weighting come from the PSI New Mexico examination content outline effective July 1, 2026.
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