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  2. Insurance Terms Starting With D

Deferred Acquisition Cost

What is Deferred Acquisition Cost?

Deferred acquisition cost (DAC) is the upfront expenses incurred by an insurance company during the acquisition of new insurance business. These costs include commissions, fees, and other administrative expenses associated with acquiring and maintaining an insurance policy. Instead of deducting these costs immediately, insurance companies recognize them as expenses over the life of the policies they have acquired. By deferring these costs, insurers can align them with the revenue generated from the policies over time. This leads to a more accurate matching of expenses and income on their financial statements. The DAC approach helps insurers manage their financial performance and report accurate profitability measures.