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Policy Acquisition Costs

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Definition of Policy Acquisition Costs

Policy Acquisition Costs Image 1

Policy Acquisition Costs

costs incurred by insurance companies in signing new policies, including expenditures on commissions and other selling expenses, promotion expenses, premium
taxes, and certain underwriting expenses. Refer also to customer, member, or subscriber
acquisition costs.



Related Terms:

Accomodating Policy

A monetary policy of matching wage and price increases with money supply increases so that the real money supply does not fall and push the economy into recession.


acquisition

Takeover of a firm by purchase of that firm’s common
stock or assets.


Acquisition of assets

A merger or consolidation in which an acquirer purchases the selling firm's assets.


Acquisition of stock

A merger or consolidation in which an acquirer purchases the acquiree's stock.


Agency costs

The incremental costs of having an agent make decisions for a principal.



Avoidable costs

costs that are identifiable with and able to be influenced by decisions made at the business
unit (e.g. division) level.


Beggar-My-Neighbor Policy

A policy designed to increase an economy's prosperity at the expense of another country's prosperity.


Policy Acquisition Costs Image 2

capitalization of costs

When a cost is recorded originally as an increase
to an asset account, it is said to be capitalized. This means that the outlay
is treated as a capital expenditure, which becomes part of the total
cost basis of the asset. The alternative is to record the cost as an expense
immediately in the period the cost is incurred. Capitalized costs refer
mainly to costs that are recorded in the long-term operating assets of a
business, such as buildings, machines, equipment, tools, and so on.


Carring costs

costs that increase with increases in the level of investment in current assets.


carrying costs

costs of maintaining current assets, including opportunity cost of capital.


Cold-Turkey Policy

Decreasing inflation by immediately decreasing the money growth rate to a new, low rate. Contrast with gradualism.


Collection policy

Procedures followed by a firm in attempting to collect accounts receivables.


collection policy

Procedures to collect and monitor receivables.


Company Acquisitions

Assets acquired to create money. May include plant, machinery and equipment, shares of another company etc.


Corporate acquisition

The acquisition of one firm by anther firm.


Costs Capitalized in Stealth

A particularly egregious form of aggressive cost capitalization
where inappropriately capitalized costs are hidden within other unrelated account balances.


Policy Acquisition Costs Image 3

costs of financial distress

costs arising from bankruptcy or distorted business decisions before bankruptcy.


Creative Acquisition Accounting

The allocation to expense of a greater portion of the price
paid for another company in an acquisition in an effort to reduce acquisition-year earnings and
boost future-year earnings. acquisition-year expense charges include purchased in-process research
and development and an overly aggressive accrual of costs required to effect the acquisition.



credit policy

Standards set to determine the amount and nature of credit to extend to customers.


Delivery policy

A company’s stated goal for how soon a customer order will be
shipped following receipt of that order.


Demand Management Policy

Fiscal or monetary policy designed to influence aggregate demand for goods and services.


Direct costs

costs that are readily traceable to particular products or services.


Discretionary Policy

A policy that is a conscious, considered response to each situation as it arises. Contrast with policy rule.


Dividend policy

An established guide for the firm to determine the amount of money it will pay as dividends.


Dividend Policy

This policy governs Canada Life's actions regarding distribution of dividends to policyholders. It's goal is to achieve a dividend distribution that is equitable and timely, and which gives full recognition of the need to ensure the ongoing solidity of the company. It also specifies that distribution to individual policyholders must be equitable between dividend classes and policyholder generations, and among policyholders within any class.


Execution costs

The difference between the execution price of a security and the price that would have
existed in the absence of a trade, which can be further divided into market impact costs and market timing
costs.


Financial distress costs

Legal and administrative costs of liquidation or reorganization. Also includes
implied costs associated with impaired ability to do business (indirect costs).


Fiscal policy

The use of government spending and taxing for the specific purpose of stabilizing the economy.



Fiscal Policy

A change in government spending or taxing, designed to influence economic activity.


Fixed costs

costs that do not change with increases or decreases in the volume of goods or services
produced, within the relevant range.


fixed costs

costs that do not depend on the level of output.


fixed expenses (costs)

Expenses or costs that remain the same in amount,
or fixed, over the short run and do not vary with changes in sales volume
or sales revenue or other measures of business activity. Over the
longer run, however, these costs increase or decrease as the business
grows or declines. Fixed operating costs provide capacity to carry on
operations and make sales. Fixed manufacturing overhead costs provide
production capacity. Fixed expenses are a key pivot point for the analysis
of profit behavior, especially for determining the breakeven point and for
analyzing strategies to improve profit performance.


Friction costs

costs, both implied and direct, associated with a transaction. Such costs include time, effort,
money, and associated tax effects of gathering information and making a transaction.


Funding Costs

The price of obtaining capital, either borrowed or equity, with intent to carry on business operations.


Horizontal acquisition

Merger between two companies producing similar goods or services.


Incomes Policy

A policy designed to lower inflation without reducing aggregate demand. Wage/price controls are an example.


Incremental costs and benefits

costs and benefits that would occur if a particular course of action were
taken compared to those that would occur if that course of action were not taken.


Indirect costs

costs that are necessary to produce a product/service but are not readily traceable to particular products or services – see overhead.


Information costs

Transaction costs that include the assessment of the investment merits of a financial asset.
Related: search costs.


Insurance Policy (Credit Insurance)

A policy under which the insurance company promises to pay a benefit of the person who is insured.


Joint Policy Life

One insurance policy that covers two lives, and generally provides for payment at the time of the first insured's death. It could also be structured to pay on second death basis for estate planning purposes.


Lending Policy

A course of action adopted by a financial institution to guide and usually determine present and future decisions in the light of given conditions.


Market impact costs

Also called price impact costs, the result of a bid/ask spread and a dealer's price concession.


Market timing costs

costs that arise from price movement of the stock during the time of the transaction
which is attributed to other activity in the stock.


Menu Costs

The costs to firms of changing their prices.


Monetary policy

Actions taken by the Board of Governors of the Federal Reserve System to influence the
money supply or interest rates.


Monetary Policy

Actions taken by the central bank to change the supply of money and the interest rate and thereby affect economic activity.


Non-participating Policy

A type of insurance policy or annuity in which the owner does not receive dividends.


Opportunity costs

The difference in the performance of an actual investment and a desired investment
adjusted for fixed costs and execution costs. The performance differential is a consequence of not being able
to implement all desired trades. Most valuable alternative that is given up.


overhead costs

Overhead generally refers to indirect, in contrast to direct,
costs. Indirect means that a cost cannot be matched or coupled in any
obvious or objective manner with particular products, specific revenue
sources, or a particular organizational unit. Manufacturing overhead
costs are the indirect costs in making products, which are in addition to
the direct costs of raw materials and labor. Manufacturing overhead
costs include both variable costs (electricity, gas, water, etc.), which vary
with total production output, and fixed costs, which do not vary with
increases or decreases in actual production output.


Participating Policy

A policy offers the potential of sharing in the success of an insurance company through the receipt of dividends.


Perfect market view (of dividend policy)

Analysis of a decision on dividend policy, in a perfect capital
market environment, that shows the irrelevance of dividend policy in a perfect capital market.


Period costs

The costs that relate to a period of time.


Policy

A written document that serves as evidence of insurance coverage and contains pertinent information about the benefits, coverage and owner, as well as its associated directives and obligations.


Policy Anniversary

Yearly event linked to a policy. Usually the date issued.


Policy asset allocation

A long-term asset allocation method, in which the investor seeks to assess an
appropriate long-term "normal" asset mix that represents an ideal blend of controlled risk and enhanced
return.


Policy Date

Date on which the insurance company assumes responsibilities for the obligations outlined in a policy.


Policy Fee

This is an administrative fee which is part of most life insurance policies. It ranges from about $40 to as much as $100 per year per policy. It is not a separate fee. It is incorporated in the regular monthly, quarterly, semi-annual or annual payment that you make for your policy. Knowing about this hidden fee is important because some insurance companies offer a policy fee discount on additional policies purchased under certain conditions. Sometimes they reduce the policy fee or waive it altogether on one or more additional policies purchased at the same time and billed to the same address. The rules are slightly different depending on the insurance company. There could be enormous savings if several people in the same family or business were intending to purchase coverage at the same time.


Policy Fee

Administrative charge included in a policy Premium.


Policy-Ineffectiveness Proposition

Theory that anticipated policy has no effect on output.


Policy Rule

A formula for determining policy. Contrast with discretionary policy.


Policy Year

Period between two policy anniversaries.


Policyholder

This is the person who owns a life insurance policy. This is usually the insured person, but it may also be a relative of the insured, a partnership or a corporation. There are instances in marriage breakup (or relationship breakup with dependent children) where appropriate life insurance on the support provider, owned and paid for by the ex-spouse receiving the support is an acceptable method of ensuring future security.


Policyowner

The person who owns and holds all rights under the policy, including the power to name and change beneficiaries, make a policy loan, assign the policy to a financial institution as collateral for a loan, withdraw funds or surrender the policy.


Political Costs

The costs of additional regulation, including higher taxes, borne by large and
high-profile firms.


Preopening Costs

A form of start-up cost incurred in preparing for the opening of a new store or facility.


Price impact costs

Related: market impact costs


Round-trip transactions costs

costs of completing a transaction, including commissions, market impact
costs, and taxes.


Search costs

costs associated with locating a counterparty to a trade, including explicit costs (such as
advertising) and implicit costs (such as the value of time). Related:information costs.


Semi-fixed costs

costs that are constant within a defined level of activity but that can increase or decrease when
activity reaches upper and lower levels.


Semi-variable costs

costs that have both fixed and variable components.


shortage costs

costs incurred from shortages in current assets.


Signaling view (on dividend policy)

The argument that dividend changes are important signals to investors
about changes in management's expectation about future earnings.


Standard costs

A budget cost for materials and labour used for decision-making, usually expressed as a per unit cost that is applied to standard quantities from a bill of materials and to standard times from a
routing.


Start-up Costs

costs related to such onetime activities as opening a new facility, introducing
a new product or service, commencing activities in a new territory, pursuing a new class of customer,
or initiating a new process in an existing or new facility.


Sunk costs

costs that have been incurred and cannot be reversed.


Sunk costs

costs that have been incurred in the past.


sunk costs

costs that have been incurred and cannot be recovered.


Tax differential view ( of dividend policy)

The view that shareholders prefer capital gains over dividends,
and hence low payout ratios, because capital gains are effectively taxed at lower rates than dividends.


Tax free acquisition

A merger or consolidation in which 1) the acquirer's tax basis in each asset whose
ownership is transferred in the transaction is generally the same as the acquiree's, and 2) each seller who
receives only stock does not have to pay any tax on the gain he realizes until the shares are sold.


Tax-Related Incomes Policy (TIP)

Tax incentives for labor and business to induce them to conform to wage/price guidelines.


Taxable acquisition

A merger or consolidation that is not a tax-fee acquisition. The selling shareholders are
treated as having sold their shares.


Trading costs

costs of buying and selling marketable securities and borrowing. Trading costs include
commissions, slippage, and the bid/ask spread. See: transaction costs.


Traditional view (of dividend policy)

An argument that "within reason," investors prefer large dividends to
smaller dividends because the dividend is sure but future capital gains are uncertain.


Transactions costs

The time, effort, and money necessary, including such things as commission fees and the
cost of physically moving the asset from seller to buyer. Related: Round-trip transaction costs, Information
costs, search costs.


Undepreciated Capital Costs

The tax definition of the value of an asset that is eligible for tax deprecation.


variable costs

costs that change as the level of output changes.


Variable life insurance policy

A whole life insurance policy that provides a death benefit dependent on the
insured's portfolio market value at the time of death. Typically the company invests premiums in common
stocks, and hence variable life policies are referred to as equity-linked policies.


Vertical acquisition

acquisition in which the acquired firm and the acquiring firm are at different steps in the
production process.



 

 

 

 

 

 

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