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New Mexico Life Practice Exam

20 exam-style questions drawn from the same bank as our full New Mexico Life course (New Mexico Life Insurance Producer — Exam Prep). Answer all 20, then grade yourself — most state exams require 70% to pass. Explanations for every question are part of the full course.

1. The part of each nonqualified annuity payment treated as tax-free return of basis is set by the
LIFO ruleInclusion ratioCost recovery ruleExclusion ratio
2. Misrepresenting a policy to persuade someone to replace a policy with another insurer is
RebatingSlidingChurningTwisting
3. Insurance on another person's life requires an
Irrevocable beneficiaryAnnuity riderInsurable interestAbsolute assignment
4. By IRS definition, an immediate annuity must begin making income payments within how many months of the purchase date?
1 month24 months6 months12 months
5. An annuity whose income starts at a later date is
QualifiedDeferredFixedImmediate
6. A term feature allowing renewal without proof of insurability is
Level premiumReturn of premiumRenewableConvertible
7. A child term rider added to a parent's life policy typically:
Pays the parent's full base policy face amount upon any covered child's death of any cause during the rider period, in addition to ordinary death-benefit liabilityConverts automatically at the insured child's age 18 into a tax-advantaged §529 college savings account funded by the rider's accumulated paid-up cash value at conversionInsures only the firstborn natural child under federal juvenile-insurance limits; any later children require separate underwriting and individual juvenile-policy applicationsProvides level term coverage on each eligible child up to a specified age, often with a conversion option to permanent insurance without evidence of insurability
8. Under IRC §101(g), accelerated death benefits paid because the insured is terminally ill are generally treated for federal income tax purposes as:
Tax-free, like death proceeds under §101(a)Tax-free only if the insured is age 59½ or olderFully taxable as ordinary incomeTaxable to the extent the benefit exceeds basis in the contract
9. A client purchases an annuity today and is scheduled to receive monthly income beginning 18 months from now. This contract is properly classified as a:
Term-certain annuityDeferred annuityImmediate annuityHybrid annuity
10. Mara, age 62, opened her first Roth IRA three years ago and has contributed $5,000 each year. She now wants to withdraw $20,000 (her $15,000 in contributions plus $5,000 of earnings). How is the distribution taxed?
The $15,000 of contributions is tax-free; the $5,000 of earnings is taxable and subject to a 10% penalty.The $15,000 of contributions is tax-free; the $5,000 of earnings is taxable but not subject to the 10% penalty.The entire $20,000 is tax-free because Mara is over age 59½.The entire $20,000 is taxable as ordinary income because the account is less than 5 years old.
11. A report from the applicant's own doctor is an
Paramedical examInspection reportMIB reportAttending physician statement
12. A 20-pay life policy and a 20-year endowment policy both have a 20-year premium-paying period. What is the key difference between them?
20-pay life is paid up at year 20 but coverage continues for life; a 20-year endowment matures and pays the face amount to the living insured at year 2020-pay life is a form of decreasing term insurance, while the 20-year endowment is a permanent contract that endows at age 100 under standard mortality20-pay life builds no cash value during its premium-paying period, while the endowment builds the cash value that funds the year-20 maturity distributionBoth contracts pay the face amount at year 20 to the policy owner; only the premium amount and the underlying mortality assumption differ between the two
13. An agent suggests a §1035 exchange in which the insured on the original life-insurance contract is the husband, but the insured on the new contract will be the wife. Is this a valid §1035 exchange?
No — §1035 requires that the obligee (the insured or annuitant) on the new contract be the same as on the old contract.Yes, provided that the issuing insurance carrier is the same on both the original surrendered contract and the new contract issued in exchangeYes — IRC §1035 only requires that the policyowner remain the same person across the old and the new life-insurance contracts being exchangedYes, provided the original surrendered contract's face amount and the new contract's face amount are equal at the date of the §1035 exchange transaction
14. On a participating whole life policy, dividends are best described as:
Taxable income to the policy owner, reportable as ordinary income each contract anniversaryGuaranteed annual interest computed on the cash value at the contract's stated minimum rateContractually guaranteed interest credited under §7702 minimum-rate rules for life policiesA return of unused premium based on the insurer's mortality, expense, and investment experience
15. Which statement best describes the defining characteristic of a term life insurance policy?
It provides death-benefit protection for a specified period and pays nothing if the insured survives the termIt allows the insured to participate in separate-account equity-market gains, like variable universal lifeIt is permanent coverage that endows at age 100 under the §7702 corridor table for life insuranceIt builds guaranteed cash value the policyowner can borrow against, similar to ordinary whole life contracts
16. The amount usually withdrawable each year without a surrender charge is the
Free withdrawal amountRequired distributionExclusion amountSurrender value
17. Under what type of insurer account are the assets supporting a traditional fixed annuity held?
General accountCustodial accountSeparate accountSubaccount
18. Constructive delivery occurs when:
The applicant physically signs the policy acceptance form on the contract's delivery receipt and personally returns the executed acknowledgment to the insurer's home office underwriting departmentThe insurer relinquishes control of the policy by mailing it to the producer with unconditional instructions to deliver it, regardless of when the producer physically hands it overThe applicant pays the first modal premium in full at the producer's office at the time the agent presents the policyThe soliciting producer leaves a voicemail message stating that the contract is ready for pickup at the agency office
19. What is the key consequence of naming a beneficiary 'irrevocably'?
The owner cannot change the beneficiary, take a loan, or assign the policy without the irrevocable beneficiary's written consentThe designation is treated as a federal gift complete only at the insured's eventual death, with the gift-tax value determined at that time under the IRC §2503 annual exclusionThe beneficiary may unilaterally surrender the policy, pocket the entire cash surrender value, and end coverage at any time without obtaining the policy owner's signed consentThe owner may still change the beneficiary, take a loan, or assign the contract at any time without obtaining the irrevocable beneficiary's signed consent on file with the insurer
20. The Gramm-Leach-Bliley Act (GLBA, 15 U.S.C. § 6801) requires a life insurer to:
Pay an annual federal privacy compliance tax to FinCEN based on a small percentage of the prior calendar year's gross premium written across all individual life and annuity products in every state of admissionProvide an initial and annual privacy notice describing what nonpublic personal financial information is collected and shared, and to allow consumers to opt out of certain non-affiliated sharingDisclose competitor pricing and policy illustrations to every applicant during the solicitation phase so that the consumer can independently compare market-wide rates before signing the carrier's application formObtain a federal life-insurance license from the Department of the Treasury before transacting business with any consumer in any state, in addition to maintaining each state department of insurance producer appointment

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