Texas All Lines Adjuster Practice Test

What does the term 'stipulation' refer to in an insurance contract?

1. A vague agreement between parties

2. A specific clause that is mutually agreed upon

3. A limitation on coverage amounts

4. Another name for a policy endorsement

The correct answer is: A specific clause that is mutually agreed upon

In the context of an insurance contract, the term 'stipulation' refers to a specific clause that is mutually agreed upon by the parties involved. This means that it outlines precise terms and conditions that both the insurer and the insured accept as part of the agreement. Stipulations help to clarify expectations, responsibilities, and obligations of each party, ensuring that all parties have a clear understanding of the scope of coverage and any other pertinent details included in the contract. By having stipulations, an insurance contract can effectively govern various aspects such as what is covered, what is excluded, and how certain scenarios will be handled. This can enhance the enforceability of the contract, as both parties are clear on what they have agreed to. In contrast, other terms like vague agreements, limitations on coverage, or endorsements do not encapsulate the specific intentionality and mutuality that a stipulation embodies.