Definition of DACDAC Deferred Acquisition Cost. In life insurance, there is a substantial up-front cost to getting new business - eg commissions and fees and advertising costs. This cost relates to a long-term policy. So accounting rules require the cost to be spread over the life of the contract, rather than deducted it from profits immediately. Accountants refer to acquisition cost as being 'deferred' or 'capitalised' - ie it is treated as an asset and depreciated (amortised) over the period of the contract. If acquisition costs were not treated like this, all contracts would be loss-making in the first year. The DAC is a way of spreading the cost of acquiring new business over time. This helps to match the cost with the benefit over time so that the annual profit is more realistic.
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