Final answer:
The incorrect statement about federal income tax and Life Insurance is that premiums paid on a life insurance policy are tax-deductible. This is generally not true for individuals, but there may be exceptions for certain businesses.
Step-by-step explanation:
The incorrect statement regarding the federal income tax treatment of Life Insurance is: c) Premiums paid on a life insurance policy are tax-deductible. This is not generally true for individual taxpayers because personal life insurance premiums are not tax-deductible on your federal income taxes. However, there are some exceptions for certain types of businesses and policies within certain limits and guidelines.
On the other hand:
- Death benefits are generally income-tax-free to beneficiaries, which is statement a).
- Cash value growth in a life insurance policy is tax-deferred, which is statement b).
- Policy loans are generally income-tax-free, assuming the policy is not a Modified Endowment Contract (MEC) and the policy stays in force, which is statement d).