Contract holders are individuals or other entities that are designated as the owner of a debt obligation, security, or other type of segregated fund where there is the expectation of receiving some type of return in the future. The contract holder is responsible for making sure that he or she complies with all terms and conditions outlined in the contractual agreement. Depending on the structure and type of the contract, the holder or owner may ultimately receive the benefits outlined in the contract, or a beneficiary designated by the contract holder may enjoy those benefits.
Insurance policies are a good example of agreements with a designated contract holder. The owner or holder is the individual responsible for paying the premiums, and complying with the requirements that are detailed in the policy. In exchange for owning the coverage, the contract holder is entitled to receive benefits from the plan as outlined in the terms and conditions of the governing agreement.
For example, the contract holder of a health insurance plan would remit a monthly premium payment in exchange for access to coverage that would offset the costs associated with medical care. When the holder visited a physician, an insurance claim would be filed, detailing the services provided during that visit. The insurance provider would evaluate the claim, determine what if any of the services are covered under the provisions of the policy, and authorize a payment to either the physician or to the contract holder.
This same general approach is true with life insurance. The contract holder pays the premium in exchange for the covenant of the insurance provider to pay an agreed-upon sum to a beneficiary at the time that the annuitant or individual who is covered by the policy, should die. With this arrangement, the holder is able to provide resources that can be used to settle end of life expenses or provide resources for the care of loved ones once the annuitant is no longer alive to do so.
While the expectation is that a contract holder will observe all the terms of a contract, including remitting regular payments, that is not always the case. When the holder does not abide by the agreement, this creates what is known as a breach of contract. At that point, the provider has the option of declaring the contract null and void, and the contract holder loses all rights and privileges that were previously made available by that agreement.