What is a lodger?
A lodger (also known as a “licensee”) is someone who rents out a spare room in the property someone else (the “licensor”) is living in for an agreed fee. Legally, a lodger is granted a licence to occupy part of a residential property. It is the preferred arrangement between parties who want to let part of a shared property but do not want to take on the official legal responsibilities of landlord and tenant with a tenancy agreement.
Where a tenant has exclusive rights to a property over a specified period and owns the space they rent, a lodger is known as a "licensee". They can not exclude the landlord from any space.
Why do you need lodger insurance?
Lodger insurance extends your existing home insurance policy to cover the liability you may face by taking in a lodger. On the other hand, Landlord insurance is only suitable if you have tenants renting a room in a home that is not your permanent residence.
While there are many benefits to housing a lodger (such as extra income and someone to water your plants when you are not there), it also increases the risk. From an insurer's point of view, the risk to your building and contents would increase when it comes to damage, theft and loss.
It is essentially another person with a set of keys to your house who may potentially be careless, cause damage (maliciously or accidentally) or steal from you. A lodger may have an accident in your home and hold you responsible.
It is essential to have the correct home insurance to protect you from damage or theft. Suppose a lodger has an accident and holds you responsible, and your insurance provider is not aware that you are letting out your home. In that case, it can lead to your insurance being invalidated, and you will be forced to pay a hefty bill.
How to get lodgers insurance
Check your policy terms and exclusions and speak to your current provider about changing your insurance policy to take into account the additional risk. They may ask you to include public liability insurance (if a lodger takes you to court), add an extra cover or an exclusion to the insurance. For example, they may specify that your home won’t be insured for any theft without an obvious sign of a break-in.
In some cases, your current home insurance provider may refuse to cover you due to the increased risk. However, you can find alternative providers through comparison websites. One thing to note is some providers may charge a fee for switching early. Therefore, it is vital to plan ahead if you intend to house a lodger.
It is important to let third parties know if you plan to house a lodger. If applicable, inform your mortgage provider to ensure you aren't in breach of your contract. Tell your local authority as it may impact your council tax bill. Additionally, if your rental income exceeds the £7,500 tax-free under the rent a room scheme, you may also need to inform the government of any income over this threshold via a tax return.