Free Life Policy Provisions Options and Riders Study Guide
New Mexico Life, Accident & Health exam — Life Policy Provisions Options and Riders.
The standard life policy provisions, nonforfeiture and settlement options, dividend options and riders are explained in the national Life Policy Provisions, Options and Riders guide. This guide covers what New Mexico's Life Insurance Policies law (NMSA 1978, 59A-20) requires, the exclusions it allows, including the suicide rule, and New Mexico's replacement rule (13.9.6 NMAC).
Required provisions
| Provision | New Mexico rule |
|---|---|
| Grace period | 30 days, or at the insurer's option one month of at least 30 days. The policy stays in force. If the insured dies during grace, the unpaid premium (with interest of up to 6% a year, if charged) is deducted (NMSA 1978, 59A-20-4). |
| Incontestability | Incontestable after two years in force during the insured's lifetime, except for nonpayment of premium. Disability and accidental death benefit provisions can be excluded (NMSA 1978, 59A-20-5). |
| Entire contract | The policy and attached application are the entire contract. Application statements are representations, not warranties, absent fraud (NMSA 1978, 59A-20-6). |
| Misstatement of age | Benefits are adjusted to what the premium would have bought at the correct age (NMSA 1978, 59A-20-7). |
| Dividends | Participating policies apportion surplus annually, starting no later than the end of the third policy year (fifth for industrial) (NMSA 1978, 59A-20-8). |
| Policy loans | After three full years of premiums, with a cash value and no default beyond grace, the insurer lends up to the loan value. Term and industrial policies are excluded. The insurer may defer a loan (other than one to pay premiums) for six months (NMSA 1978, 59A-20-9). Loan interest is either a fixed rate of no more than 8% a year or an adjustable rate tied to a published bond index (59A-20-10). |
| Nonforfeiture | The policy's automatic paid-up option takes effect unless the owner chooses another option within 60 days after the missed premium's due date (NMSA 1978, 59A-20-31). |
| Reinstatement | Within three years of default (two for industrial policies), with a written application, evidence of insurability, back premiums with interest (up to 6%) and repayment of any loan (NMSA 1978, 59A-20-12). |
| Claim settlement | Paid on receipt of due proof of death. Any settlement period stated in the policy can't exceed two months from receipt of proof (NMSA 1978, 59A-20-14). |
How far incontestability reaches
- The clause bars only contests of the policy's validity. A defense based on a provision that excludes or restricts coverage (such as an aviation exclusion) can be raised at any time (NMSA 1978, 59A-20-16(A)).
- A reinstated policy becomes incontestable again after the same period, measured from reinstatement, with the same exceptions (NMSA 1978, 59A-20-16(B)).
- New Mexico's statute lists only nonpayment as an exception. It has no fraud exception.
Allowed exclusions, including suicide
A life policy may exclude only listed risks, such as war or military service, aviation, specified hazardous occupations, residence outside the U.S. and Canada, and suicide within two years (NMSA 1978, 59A-20-25(A)).
- Suicide: death by suicide, sane or insane, may be excluded only within two years from the date of issue.
- Minimum payment: when a death falls within a permitted exclusion, the insurer must pay at least the reserve on the policy's nonforfeiture basis, adjusted for loans and dividends (NMSA 1978, 59A-20-25(B)). A refund of premiums alone isn't enough if the reserve is larger.
Prohibited provisions
- Backdating a policy to take effect more than one year before the original application (NMSA 1978, 59A-20-26(A)(1)).
- Saying the soliciting agent is the insured's agent, or making the agent's acts binding on the insured (59A-20-26(A)(3)).
- Tontine-style plans, where continuing policyholders benefit from other policyholders' lapses (59A-20-29(A)(5)).
- Calling premiums "deposits," or promising profit sharing outside regular participation (59A-20-29(A)(7)).
Replacement (13.9.6 NMAC)
- Replacement includes lapsing, surrendering or terminating a policy, converting it to reduced paid-up or extended term insurance, reducing its benefits, or using it in a financed purchase (paying for the new policy with values withdrawn, surrendered or borrowed from the old one) (13.9.6.7 NMAC).
- If the applicant has existing coverage, the producer presents and reads the replacement notice no later than when taking the application, and the applicant and producer both sign it (13.9.6.8(B) NMAC).
- The replacing insurer tells the owner they can return the new policy within 30 days of delivery for an unconditional full refund of premiums and fees (13.9.6.10 NMAC).
Common exam traps
- Suicide: two years from issue, and the insurer pays at least the reserve.
- Incontestable after two years during the insured's lifetime, with nonpayment as the only exception. Coverage exclusions can still be applied after that.
- Policy loans begin after three full years and can be deferred six months, except loans to pay premiums.
- Reinstatement window: three years.
- Replacement refund window: 30 days from delivery.
- Settlement period: no more than two months after proof of death.
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Practice questions are study aids generated for exam preparation and are not actual exam questions. Content is provided for educational purposes and is not legal advice. Verify current statutes, rules, and exam specifications with the Insurance Department and the exam administrator before relying on it.
