Deferred Acquisition Costs

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Deferred Acquisition Costs (DAC) is a term commonly used in the insurance business. It describes the practice of deferring the cost of acquiring a new customer over the duration of the insurance contract. This is a unique issue that Insurance companies face due to the very large upfront costs incurred at the issuance of new business such as commissions to sales agents, underwriting, bonus interest and other acquisition expenses.

[edit] Background

Insurance companies incur large expenses when acquiring new business, but to ensure that they comply with U.S. GAAP's Matching principle they need to spread out these costs over the period that revenues are earned.

The DAC is treated as an asset on the Balance Sheet and amortized over the life of the insurance contract.