We capitalize costs that vary with and are related primarily to the acquisition of new and renewal insurance and annuity contracts. These costs include primarily commissions, costs of policy issuance and underwriting, and variable field office expenses that are incurred in producing new products. We amortize these deferred policy acquisition costs, or DAC, over the expected lives of the contracts, based on our estimates of the level and timing of gross profits or gross premiums, depending on the type of contract. As described in more detailed below, in calculating DAC amortization we are required to make assumptions about investment returns, mortality and other items that impact our estimates of the level and timing of gross profits or gross premiums. As of December 31, 2009, DAC for life products was $232 million and DAC for our annuity products was $73 million.
An increase or decrease in our effective tax rate by one percent, would have resulted in a decline or increase in consolidated income from continuing operations in 2009 of $0.7 million.
Deferred policy acquisition costs decreased by $21 million from $327 million at December 31, 2008, to $306 million at December 31, 2009, primarily due to $56 million related to unrealized investment gains. Also contributing to the decline in the asset was $23 million of additional amortization related to non-performance risk on our embedded derivative liabilities as discussed above. We amortize deferred policy acquisition and other costs associated with variable and universal life policies and the variable and fixed annuity contracts over the expected lives of the contracts based on the level and timing of gross profits on the underlying product. In calculating gross profits, we consider mortality, persistency, and other elements as well as rates of return on investments associated with these contracts and include profits and losses related to these contracts that are reported in affiliated legal entities other than the Company, for example, reinsurance agreements with those affiliated entities. This amortization was partially offset by $57 million of capitalization of acquisition costs from the continued growth of sales in life and annuity products.
Benefits and expenses decreased $16 million from $87 million in 2008 to $71 million for in 2009, driven by lower amortization of deferred policy acquisition costs (“DAC”) that decreased $20 million, from $33 million in 2008 to $13 million in 2009. Absent the net impact of the annual reviews that resulted in lower amortization of $3 million as discussed below, amortization of deferred policy acquisition costs decreased $17 million, from $38 million in 2008 to $21 million in 2009. The $17 million of lower amortization of deferred policy acquisition costs in 2009, relative to the prior year, was primarily due to the impact of more favorable equity markets in the last three quarters of 2009 on variable product separate account fund performance. Weak equity markets in 2008 drove unfavorable separate account fund performance that resulted in higher DAC amortization in 2008. Included in the $17 million of lower amortization of DAC is a partial offset due to an increase in amortization of DAC caused by lower variable product policy persistency reflecting the impact of unfavorable equity markets in late 2008 and early 2009.
Amortization of deferred policy acquisition costs (“DAC”) increased by $5 million, from $5 million in 2008 to $10 million in 2009 primarily due to higher gross profits used to amortize DAC including the impact of the change in non-performance risk in the valuation of embedded derivatives partially offset by a favorable adjustment due to the quarterly market performance adjustment as discussed below.
We adopted the revised authoritative guidance for accounting for uncertainty in income taxes on January 1, 2007.
Individual life insurance policies are less susceptible to withdrawal than our annuity reserves and deposit liabilities because policyholders may incur surrender charges and be subject to a new underwriting process in order to obtain a new insurance policy. Our annuity reserves with guarantee features may be less susceptible to withdrawal than historical experience indicates, due to the current value of these guarantee features to policyholders as a result of recent market declines.