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LSDefine
Simple English definitions for legal terms
underwrite
Read a random definition: depository institution
A quick definition of underwrite:
Underwrite: When someone agrees to invest money in something, like a loan, insurance, or securities, they are taking a risk. They hope to make a profit, but they could also lose money. For example, when you borrow money, the person lending it to you is underwriting the risk that you might not pay it back. When you buy insurance, the company is underwriting the risk that something bad might happen to you. And when you invest in stocks or bonds, you are underwriting the risk that their value might go down instead of up.
A more thorough explanation:
Definition: Underwrite means taking on financial risk in the hope of making a profit. It can refer to different types of financial investments, such as loans, insurance, and securities.
Examples:
- Loans: When someone lends money to another person, they are underwriting the risk that the borrower may not pay back the loan. The lender hopes to make a profit by charging interest on the loan.
- Insurance: Insurance companies underwrite the risk that their policyholders may suffer losses or damages. They hope to make a profit by charging premiums that are higher than the amount they pay out in claims.
- Securities: Investors may underwrite the risk of buying stocks or bonds, hoping that the value of these securities will increase over time and they can sell them for a profit.
These examples illustrate how underwriting involves taking on financial risk in the hope of making a profit. In each case, the investor or lender is willing to risk losing money in exchange for the possibility of earning a return on their investment.