Definition: The practice of deferring the outlays incurred in the acquisition of new business over the term of the insurance contract is called deferred acquisition cost. Description: Acquisition costs are the direct and indirect variable outlays incurred by an insurer at the time of selling or underwriting an insurance contract (both new and renewal). The costs may be in the form of brokerage, underwriting costs or medical expenses etc.
The accounting norms stipulate that the acquisition costs can be capitalized and deferred if they can be offset by the revenues or future investment margins earned during the duration of the insurance contract. Investment margin refers to the difference between the investment earnings and interest payments.