What type of agreement helps avoid litigation in case of disputes?

An arbitration agreement is designed specifically to help parties resolve disputes without going through the formal court system, thereby avoiding litigation. In such agreements, the parties agree to submit their disagreements to an arbitrator or a panel of arbitrators, who will make binding decisions based on the evidence presented. This process is usually quicker and less expensive than traditional litigation, allowing for a more streamlined resolution.

On the other hand, a loan agreement, a purchase contract, and an insurance policy primarily serve different purposes. A loan agreement details the terms of a loan, a purchase contract outlines the terms of a sale, and an insurance policy provides financial protection against specific risks. While these documents may contain dispute resolution clauses, their main function is not specifically to avoid litigation, whereas an arbitration agreement's core purpose is to provide a mechanism for conflict resolution outside of the courts.