17 Free New Mexico Life & Health Practice Questions: Types of Life Insurance Policies (2026)
How to Use This Life Policy Types Set
Types of Life Insurance Policies is 9% of the exam, or 13 of the 150 scored items. The skill is matching a client's description to a product: term for a limited need, whole life for permanence, universal and indexed life for flexibility, variable life for investment choice, and special forms such as joint life and juvenile policies.
These 17 questions come from LanePrep's New Mexico L&H quiz bank and follow three areas: naming a policy from a client's situation, the features of juvenile, group and family policies, and matching term or whole life to the need. Each question has a "Show answer & explanation" control, so commit to an answer first.
Find the one detail that decides the policy. It is usually the number of lives covered, how long premiums are paid, who bears the investment risk, or whether the cover shrinks.
Practice Questions 1-6: Variable, Joint and Indexed Life, Term Variations and Group Conversion
Reading a client's description and naming the policy, from sub-account investing to first-to-die cover and the indexed participation rate. The block also takes in group life conversion and two term provisions that change what happens when a term ends or before permanent cover begins.
Question 1 (Chapter 4)
An investor in Santa Fe wants a life insurance policy that allows her to choose where her cash value is invested, such as in various stock and bond sub-accounts. She understands that the cash value is not guaranteed and may fluctuate. What policy is she considering?
- A) Ordinary Whole Life
- B) Universal Life
- C) Variable Life
- D) Indexed Universal Life
Show answer & explanation
Answer: C
Variable Life insurance features a separate account where the policyowner chooses investments. Because the cash value is tied to the performance of these sub-accounts, it is not guaranteed and the policyowner assumes the investment risk.
Question 2 (Chapter 4)
A business partnership in Farmington wants a policy that covers both partners and pays out a death benefit to the surviving partner when the first one dies to help fund a buy-sell agreement. What is this called?
- A) Survivorship Life
- B) Key Person Whole Life
- C) Double Indemnity Life
- D) Joint Life
Show answer & explanation
Answer: D
Joint Life (first-to-die) covers two or more individuals and pays the death benefit upon the death of the first person. This is ideal for funding buy-sell agreements between business partners.
Question 3 (Chapter 4)
A New Mexico employee is terminated from his job and wants to convert his group life insurance to an individual policy. According to standard group life provisions, how many days does he have to convert without proving insurability?
- A) 10 days
- B) 20 days
- C) 45 days
- D) 31 days
Show answer & explanation
Answer: D
Standard group life insurance (and New Mexico law) typically provides a 31-day conversion period during which an individual can convert group coverage to a permanent individual policy without a medical exam.
Question 4 (Chapter 4)
In an Indexed Universal Life policy, the 'Participation Rate' refers to:
- A) The percentage of the index's gain that will be credited to the cash value.
- B) The percentage of employees who must join a group plan.
- C) The interest rate charged on policy loans.
- D) The amount of the death benefit the beneficiary receives.
Show answer & explanation
Answer: A
The participation rate in an IUL policy determines what percentage of the underlying index's positive movement is actually credited to the policy's cash value (e.g., an 80% participation rate on a 10% index gain results in an 8% credit).
Question 5 (Chapter 4)
A 35-year-old applicant in Albuquerque is purchasing a Term Life policy with a 'Re-entry' provision. After the initial 10-year level period, what must the insured typically do to qualify for the policy's lowest available premium rates?
- A) Automatically renew the policy without any action.
- B) Pay a one-time 're-entry' fee equal to 10% of the face amount.
- C) Convert the policy to a permanent Whole Life plan.
- D) Provide new evidence of insurability to prove they remain in good health.
Show answer & explanation
Answer: D
A re-entry term provision allows the insured to qualify for a lower premium at the end of a term if they can pass a new medical exam (evidence of insurability). If they fail or choose not to re-qualify, they can still renew, but at a higher 'guaranteed' rate.
Question 6 (Chapter 4)
A young professional in Rio Rancho wants permanent protection but currently has a very limited budget. Her agent suggests an 'Interim Term' policy. What is the primary function of this arrangement?
- A) It provides immediate term protection for a few months until a permanent policy begins at a later date.
- B) It provides permanent coverage that decreases over time to lower the cost.
- C) It allows the insured to skip premiums for the first year of a Whole Life policy.
- D) It is a form of group insurance for seasonal employees.
Show answer & explanation
Answer: A
Interim Term is used when an applicant wants permanent insurance but wants the policy to start (and the age-based premium to be set) at a later date. It provides term coverage in the 'interim' period, usually between one and eleven months.
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Practice Questions 7-12: Group Enrollment, Juvenile and Family Policies, Universal Life and Straight Life
Group plans and juvenile policies carry rules that individual policies do not, such as evidence of insurability for late joiners and a payor benefit. The block then covers family income-type cover, universal life's itemized statement, the jumping juvenile and what a straight life policy requires you to pay.
Question 7 (Chapter 4)
An employee in Albuquerque misses the initial open enrollment period for her employer's non-contributory group life plan. If she decides to join the plan six months later, the insurer will likely require:
- A) A higher premium than other employees.
- B) A waiting period of two years before coverage begins.
- C) Nothing; enrollment is always guaranteed in non-contributory plans.
- D) Evidence of insurability (a medical statement or exam).
Show answer & explanation
Answer: D
While group insurance usually waives individual underwriting during the initial eligibility period, employees who enroll late (outside the open enrollment or initial period) are typically required to provide evidence of insurability to prevent adverse selection.
Question 8 (Chapter 4)
A grandmother in Santa Fe buys a life insurance policy for her grandson and adds a 'Payor Benefit' rider. What happens if the grandmother dies before the grandson reaches the age of majority (usually 21)?
- A) The premiums are waived until the grandson reaches the specified age (e.g., 21).
- B) The policy's face amount is paid to the grandson immediately.
- C) The policy is cancelled, and the cash value is paid to the estate.
- D) The grandson must immediately begin paying the premiums to keep the policy.
Show answer & explanation
Answer: A
The Payor Benefit rider (common in juvenile insurance) functions like a waiver of premium rider. If the premium payor dies or becomes disabled, the insurer waives the premiums until the child reaches a certain age, ensuring the coverage stays in force.
Question 9 (Chapter 4)
A client wants a policy that provides a monthly income to his family for 20 years if he dies within the next 20 years, plus a lump-sum payment at the end of that period. Which policy/rider combination is this?
- A) Family Income Policy.
- B) Joint Life Policy.
- C) Survivorship Life Policy.
- D) Family Maintenance Policy.
Show answer & explanation
Answer: D
A Family Maintenance policy uses a Level Term rider to provide income for a fixed number of years starting from the date of death, provided the death occurs within the term. A Family Income policy uses Decreasing Term and provides income only for the remainder of the term.
Question 10 (Chapter 4)
In a Universal Life policy, the insurer provides an annual statement that clearly breaks down the cost of insurance, the administrative expenses, and the interest credited to the cash value. This characteristic is known as:
- A) Bundling
- B) Transparency Rider
- C) Unbundling
- D) Net Amount at Risk
Show answer & explanation
Answer: C
Universal Life is characterized by 'unbundling,' meaning the components of the policy (mortality, expenses, and interest) are separated and disclosed to the policyowner. Traditional Whole Life is 'bundled,' where these costs are not individually itemized for the consumer.
Question 11 (Chapter 4)
A 'Jumping Juvenile' policy is a form of life insurance where the face amount increases significantly when the child reaches a certain age (usually 21). Which of the following is TRUE regarding the premiums for this type of policy?
- A) The premiums increase fivefold along with the face amount.
- B) The premiums remain level throughout the life of the policy.
- C) The premiums are waived once the child turns 21.
- D) The premiums decrease because the child is now an adult.
Show answer & explanation
Answer: B
In a Jumping Juvenile policy, the face amount 'jumps' (usually 5 times the original amount), but the premium remains level based on the child's age at the time of original issue.
Question 12 (Chapter 4)
A 'Straight Life' policy is a type of Whole Life insurance where the policyowner pays premiums:
- A) For a set period of 20 years.
- B) Until the insured dies or reaches age 100.
- C) Until the insured reaches age 65.
- D) Only when the insurer declares a dividend.
Show answer & explanation
Answer: B
Straight Life (also called Continuous Premium or Ordinary Whole Life) requires premiums to be paid from the inception of the policy until the insured's death or the maturity of the policy at age 100 (or 120).
Practice Questions 13-17: Whole Life Features and Matching Term to the Need
What "living benefits" means, how premium payment can be limited to a set age, and which policy pays at the first death of two people. The last two questions decide most product-matching items: decreasing term for a shrinking debt and level term for maximum protection.
Question 13 (Chapter 4)
A Whole Life policy is often referred to as providing 'living benefits.' This is because:
- A) The policy pays a benefit if the insured is hospitalized.
- B) The death benefit is paid only if the insured lives past age 100.
- C) The policyowner can access the cash value through loans or surrenders while still alive.
- D) The premium is lower for individuals with healthy lifestyles.
Show answer & explanation
Answer: C
Living benefits refer to the cash value accumulation in permanent policies, which the owner can use for emergencies, retirement, or education while the insured is still living.
Question 14 (Chapter 4)
An applicant in Santa Fe is interested in a Whole Life policy but wants to stop paying premiums by the time he reaches age 65. He wants the coverage to remain in force for the rest of his life. Which premium payment structure is most appropriate?
- A) Continuous Premium (Straight Life)
- B) Single Premium Whole Life
- C) Limited Payment Whole Life
- D) Adjustable Life
Show answer & explanation
Answer: C
Limited Payment Whole Life (such as Life Paid-Up at 65) allows the policyowner to pay premiums for a set period, after which the policy is fully paid up but remains in force until death or maturity. Continuous premium requires payments until age 100, and Single Premium requires one lump sum at the start.
Question 15 (Chapter 4)
A married couple in Farmington is looking for a policy to provide income for the surviving spouse. They want a single policy that covers both of them and pays out the death benefit when the first person dies. What is this policy called?
- A) Joint Life
- B) Survivorship Life
- C) Family Policy
- D) Juvenile Life
Show answer & explanation
Answer: A
Joint Life (also known as First-to-Die) covers two or more lives and pays the death benefit upon the death of the first insured. Survivorship Life (Second-to-Die) pays only after both insureds have passed away.
Question 16 (Chapter 4)
A consumer in Las Cruces takes out a 5-year business loan and wants a life insurance policy that will pay off the loan if he dies, but he wants the premium to be as low as possible. Which policy type is best suited for this?
- A) 5-year Level Term
- B) 5-year Increasing Term
- C) 5-year Decreasing Term
- D) Whole Life
Show answer & explanation
Answer: C
Decreasing Term insurance is specifically designed for debts that reduce over time. The death benefit decreases as the loan balance decreases, making it the most cost-effective way to cover a specific, amortizing debt.
Question 17 (Chapter 4)
A 30-year-old applicant in Albuquerque wants the maximum amount of life insurance protection for the lowest possible cost for the next 20 years. He is not interested in building cash value. Which policy should he choose?
- A) Ordinary Whole Life
- B) 20-Year Level Term
- C) Variable Life
- D) Adjustable Life
Show answer & explanation
Answer: B
Level Term insurance provides 'pure protection' with no cash value. Because it does not build equity, it is the least expensive way to purchase a large death benefit for a specific period of time.
The Mistakes That Cost Marks
Swapping joint life and survivorship life. Joint life, also called first-to-die, pays when the first insured dies, which is why it funds buy-sell agreements and income for a surviving spouse. Survivorship life, or second-to-die, pays only after both have died.
Confusing family income with family maintenance. Family income uses a decreasing term rider and pays income only for the rest of the term. Family maintenance uses a level term rider and pays income for a fixed number of years from the date of death, provided death occurs within the term.
Assuming a jumping juvenile policy raises the premium. The face amount jumps, usually to five times the original amount, but the premium stays level at the child's original issue age. A payor benefit rider waives premiums if the payor dies or becomes disabled.
Mixing up whole life payment structures. Straight life, also called continuous premium or ordinary whole life, is paid until death or maturity at age 100. Limited payment whole life, such as paid-up at 65, is paid for a set period and then stays in force. Single premium is one payment. The "living benefits" of whole life are access to cash value through loans and surrenders.
Picking the wrong term for the need. A loan that amortizes calls for decreasing term, whose benefit falls with the balance. Maximum protection at the lowest cost for a set period, with no interest in cash value, calls for level term. For group life, remember the standard 31-day window to convert without proving insurability, and that late enrollers usually have to show evidence of insurability.
Your Next Step
Product types stick when you hear them described in a client's words. Chapter 1 of LanePrep's New Mexico Life & Health course is free, and chapter 4 covers the types of life policies in audio. Then continue with the policy provisions, options and riders set.
Every topic set is listed on the free New Mexico Life & Health practice questions page, and our difficulty guide shows where this 9% section sits in the exam.
Question counts and content weighting come from the PSI New Mexico examination content outline effective July 1, 2026.
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