What Does Deferred Acquisition Cost Mean?

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What does Deferred Acquisition Cost mean? Read on to discover the definition & meaning of the term Deferred Acquisition Cost - to help you better understand the language used in insurance policies.

Deferred Acquisition Cost

Deferred Acquisition Cost

The amount of an insurer's acquisition costs incurred as premium is written but earned and expensed over the term of the policy. The unearned portion is capitalized and recognized as an asset on the insurer's balance sheet. Under statutory accounting, all acquisition costs are 100 percent earned and expensed at inception of the policy, creating an immediate reduction in surplus. In life insurance, acquisition costs are recognized as premium is earned, creating a tax effect referred to as the "DAC tax."

We hope the you have a better understanding of the meaning of Deferred Acquisition Cost.

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