What is 'Contract Holder'

A contract holder is an individual or organization owed a return on a contractual obligation. If all parties meet the terms of the contract, the contract holder receives the full benefits outlined in the contract.

BREAKING DOWN 'Contract Holder'

In broad terms, a contract holder owns a promise of a financial return on a specified date, usually in return for something of value. For example, a contract covering a debt obligation would be held by the person or entity lending the funds. A bank issuing a mortgage becomes a contract holder, exchanging the cash necessary to purchase real estate in exchange for a collateralized loan. The contractual terms of the loan, such as the interest rate, payment schedule and final repayment due date, describe the benefits owed to the contract holder. In some cases, the contract holder reserves the right to transfer the benefits in whole or in part to another party, such as when a bank sells a block of mortgages to a financial services company.

Contract Holders in the Insurance Industry

In the context of insurance, contract holders exchange premiums for contractually obligated benefits. Any individual or group that purchases insurance would be considered the contract holder. For example, an individual who purchases automobile insurance directly from an insurance agent becomes the contract holder, since they exchange a premium subscription for benefits in the form of payouts on claims arising from automobile accidents. An employee who receives health insurance as an employment benefit typically contributes to a group policy, however. In that case, the employer who purchases the group coverage from the insurer serves as the contract holder, since the premiums and benefits technically flow through an employer’s human resources department.

The terms of a contract govern the conditions under which the contract holder receives benefits. If the contract holder breaks one or more provisions or terms of the contract agreement, they may forfeit some or all of their benefits.

For example, a contract of an automobile insurance policy must abide by a number of provisions contained in the insurance policy in order to collect on claims. Policies typically give insurers recourse to deny claims if insured parties make substantive misrepresentations or conceal key information when they apply for a policy. If an applicant for an automobile insurance policy failed to mention that they had a child of driving age living in the household, the insurance company could legally void their rights as a contract holder if the child got into an accident.

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