Most first-time visitors to Iceland are overwhelmed by all the car rental insurance options, for good reason. Between gravel roads, strong winds, and sandstorms, Iceland has risks you won’t find in most other places. That’s why Iceland rental car insurance is such a hot topic. Most rental companies charge extra for even basic protection, but at Cars Iceland, we already include it in the price. However, upgrading to the liability waiver removes most of the financial risks by reducing your deductible to zero on covered damages.
If you’re wondering what insurance you should get for your car rental in Iceland, the answer isn’t one-size-fits-all. Many visitors underestimate this. You must consider your route, the time of year, and more to ensure you have the most appropriate coverage to minimize your costs. Let’s take a deep dive into Iceland rental car insurance, so you can make a fully informed decision.
What Insurance Is Included With Every Cars Iceland Rental?
First, understand which types of car insurance are included with your rental. At Cars Iceland, we automatically include the basic insurance coverage every car in Iceland should have without paying extra. For instance, Collision Damage Waiver and third-party liability insurance, along with theft protection and personal accident insurance, are always included with our rentals.
Understanding the Two Mandatory Coverages in Iceland
In Iceland, the law dictates that all vehicles driven on the road should have two basic types of coverage. Driving without them is illegal. You are required to have third-party liability and Collision Damage Waiver insurance, which is why we include them in the cost of our rentals.
Third-Party Liability (TPL)
Third-party liability (TPL) insurance is the basic insurance required of all vehicles in Iceland. It covers any damages or injuries to the other party involved in an accident. Because TPL is required by law, it is commonly included in your rental fee for no additional charge.
Collision Damage Waiver (CDW)
Another type of insurance we include with our rentals is Collision Damage Waiver (CDW) insurance. This insurance covers the cost of body damage to your vehicle, such as scratches and dents. However, there is a deductible you must pay.
If the total damage is below this excess amount, you will pay the entire bill. However, if it is more than the excess, you only pay the deductible amount, nothing more.
What Is Self-Risk (Deductible), and Why Does It Matter
In simple terms, the self-risk, also known as the deductible, on your CDW insurance is the maximum amount you pay for damages to your rental car.
Why does this matter in Iceland? Car repairs in Iceland are expensive, and the chances of damage can be high due to:
- Rapidly changing weather conditions
- High winds
- Gravel roads
- Sand storms
Many of our rental cars return with some form of damage, often due to no fault of the driver. That’s why CDW insurance is a must; it caps the maximum amount you pay at the return if damage occurs.
Optional Insurances: Do You Actually Need Them?
You may be wondering, “Does my credit card cover car rental in Iceland?” or “Do I really need to pay for more insurance?” In most cases, it’s best to buy the extra insurance, unless you have confirmed with your credit card whether they cover Iceland and to what extent (some exclude certain countries or vehicle types). Many travelers rely on credit card insurance, only to discover exclusions or long reimbursement delays if they need to make a claim.
Here are the most common extras to consider and why you may need them. If you can reduce your out-of-pocket costs to zero with the best liability waiver package, you lock in a more predictable trip cost without the stress over whether your car is getting damaged along the way.
Super Collision Damage Waiver (SCDW)
What’s the difference in CDW vs. SCDW in Iceland? While CDW is included in your rental price, we recommend upgrading to Super Collision Damage Waiver (SCDW) insurance. In short, SCDW insurance reduces the deductible. For instance, CDW may have a deductible of $1000-2000, while SCDW may bring it down to $300-$1000.
Like CDW, SCDW covers body damage and damage to your vehicle. However, it does not cover key risks like wind damage, sandstorms, water damage, windshield cracks, flat tires, tire punctures, and undercarriage damage, all of which are common in Iceland. That’s something a lot of visitors don’t realize until it’s too late, and why we offer extra options.
Gravel Protection
“Do I need gravel protection in Iceland?” Gravel is everywhere, even when you’re not on gravel roads. Erosion and studded winter tires can create gravel on just about any road. When cars pass you, or you follow too closely, gravel can kick up, damaging the front end, headlights, or windshield. This is one of the most frequent types of damage on Icelandic roads. However, if you do plan to rent a 4x4 for the Highlands, gravel protection is even more critical.
Most travelers assume the windshield is covered under standard insurance, but it’s not. You usually need to add gravel protection for proper windshield coverage. If you’re driving anywhere outside Reykjavík, gravel protection, which includes windshield coverage, is strongly recommended.
What is gravel protection in Iceland? Gravel protection provides coverage for damage caused by gravel, such as chips or cracks in your windshield or chipped paint. A single windshield crack can cost 70,000-200,000 ISK ($575-$1600 USD) to repair or replace. Paint damage from gravel can cost 37,000-122,000 ISK ($300-$1000 USD) to correct.
Sand and Ash Protection
Is sand and ash insurance in Iceland worth it? After all, volcanoes aren’t erupting every day, so do you really need it? Sand and ash protection isn’t just about explosive volcanic eruptions that send ash flying through the air. Some parts of Iceland are open sandy plains. With windy conditions, you can quickly find yourself in the center of a sandstorm.
Volcanic sand is typically more abrasive than other types, so when it blows around in Iceland’s high winds, it can damage the car paint, essentially sandblasting the car. The cost of an unexpected sandblast can run you 245,000-610,000 ISK ($2000-$5000 USD).
These sandy areas are common on the South Coast and in the Northeast. If you will be driving in these areas, we strongly recommend adding sand and ash protection to avoid the high cost of repainting a car.
Tire Protection
The tires are another common exclusion from basic insurance packages, but it’s another common type of damage on Iceland’s roads. Tire insurance for your Iceland rental means you get peace of mind if you get a flat tire, a blowout, or any other tire issues.
Whether you get a tire puncture or the tire blows out, tire protection is required to cover the cost of these damages. With rough gravel roads and the potential for potholes, washboarding, and sharp rocks, this type of damage is common, especially for drivers in the Highlands.
Theft Protection
Car theft isn’t a big problem in Iceland, but it’s still worth having this protection just in case. Because of the low risk, we include this coverage at no additional cost to you. However, it’s important to note that theft protection does not cover the contents of your vehicle. If someone steals your belongings from inside the car, you will need to make a claim against your travel insurance instead.
The Cars Iceland Liability Waiver: Zero Deductible Coverage
At Cars Iceland, we bundle comprehensive coverage into zero-deductible coverage with a liability waiver. Our zero-excess insurance includes:
- CDW
- SCDW
- Personal Accident Insurance
- TPL
- Theft Protection
- Sand and Ash Protection
- Gravel Protection
- Tire Protection
In addition, your deductible is reduced to zero, but only for covered damages. This means you won’t have to pay anything if your vehicle is damaged during your trip. With no deductible, you won’t have any surprises when you return your car, no matter what Iceland throws your way.
For most first-time visitors, the liability waiver is the simplest and safest choice for a more predictable total trip cost with no surprises.
Insurance by Trip Type: What We Recommend
The good news is that not every trip needs the same level of insurance coverage. Before you book your rental, think about where you want to go in Iceland. Your plans will dictate how much insurance is required when you book.
City & Golden Circle Travelers
City roads and the Golden Circle are mostly paved and well-maintained, meaning little risk of damage beyond the usual damage caused by accidents. However, there are some gravel roads you may encounter, depending on which stops and side trips you add to your itinerary. For these trips, we recommend adding:
- Super Collision Damage Waiver (SCDW)
- Gravel Protection
Ring Road Drivers
The Ring Road is another popular option for self-driving. If you intend to drive the entire Ring Road, you are more likely to encounter gravel roads. The more time you spend on the road, the higher your risk of getting into an accident or experiencing damage to your car. With long distances, gravel roads, and fast-changing conditions, we recommend:
- SCDW
- Gravel Protection
- Sand and Ash Protection
Highlands & F-Road Adventurers
Driving on the F-roads into the Highlands is only possible in the summer. Road conditions here are challenging, increasing your risk of damage. If you’re an adventure seeker who rented a 4x4 to tackle these rough gravel roads, you need the most comprehensive coverage to account for everything that can happen. We recommend:
- SCDW
- Gravel Protection
- Sand and Ash Protection
- Tire Protection
Taking our zero-excess coverage means you can drive in the Highlands with fewer worries.
South Coast Visitors
The South Coast is another popular route that many visitors, especially first-time visitors, take during their trips. It’s perfect to see some of the most iconic sights in Iceland without difficult driving conditions. However, you will likely drive on some gravel roads and experience sandstorms in open areas filled with volcanic sand. For this route, we recommend:
- SCDW
- Gravel Protection
- Sand & Ash
What Is NOT Covered by Any Insurance in Iceland?
Just as important as knowing what is covered is understanding what isn’t commonly or is never covered by your rental insurance. What does Icelandic car insurance not cover? Here are situations where travelers are most often surprised by large repair bills, even if they choose full coverage.
Undercarriage damage is one of the most expensive risks in Iceland, and it is never covered, no matter which insurance package you choose. This damage often occurs when:
- Driving on rough F-roads
- Hitting large rocks or uneven terrain
- Driving too fast on gravel roads
- Crossing poorly maintained tracks
The underbody of a car is extremely vulnerable, so even a single hit can cause severe mechanical damage. You can expect to pay anywhere between 200,000 ISK ($1600 USD) for a minor scrape and 680,000 ISK ($5600 USD) or even more for major structural damage. Remember, even zero-excess insurance does NOT cover this.
Water damage, especially from river crossings, is another major exclusion that catches visitors by surprise. Many F-roads require crossing unbridged rivers. If done incorrectly, water can enter the engine, causing hydrolock. When water enters the engine’s cylinders, proper combustion can’t happen, destroying the engine in seconds. Because of the high risk and damage severity:
- Water damage is never covered by rental insurance
- Repairs often require full engine replacement
- Costs can exceed the vehicle’s value
If you’re not experienced with river crossings, it’s best to avoid them entirely. No insurance will pay for even a minor mistake.
Other common damages that aren’t included with insurance include:
- High winds that damage your car doors
- Hitting an animal that is standing in or runs across the road
None of these things is covered by your Iceland rental car insurance policy, no matter how much you add, which often catches visitors off guard.
For example, if your door is bent backward by a wind gust, damaging the exterior of the car and/or the door hinges, it could cost you 122,000-365,000 ISK ($1000-$3000 USD) when you return the car at the end of your trip. Drive somewhere unsafe and get undercarriage damage? This will cost you between 200,000 and 680,000 ISK ($1600-$5600 USD) or even more in severe cases.
What to Do If Your Rental Car Gets Damaged in Iceland
No one expects to get in an accident or to damage their rental vehicle, but things happen, especially in Iceland’s ever-changing weather and road conditions. Knowing what to do when your rental is damaged lets you properly document it and get the coverage you paid for.
- Stay calm and assess the damage. Check for injuries, and call 112 if necessary. Turn on the hazard lights and move the vehicle to a safe location, if possible.
- Document everything. Take pictures of all vehicles involved and the conditions. Write down everything you remember.
- Call the number on your rental agreement and follow their instructions. Don’t proceed with anything without talking to a representative.
- File a police report, if needed. A report may be needed if there are injuries, another vehicle is involved, or there is significant damage to any property.
- Complete the rental damage report form. We’ll let you know where to get one.
- Reach out to 24 Road Assistance if you need help with the vehicle.
You can easily void your insurance coverage if you don’t report the damage to us or the police in a timely manner. You can also void the insurance by driving off marked roadways or ignoring weather warnings or road closures.
Iceland Rental Car Insurance: Comparison Table
Still not sure which rental car insurance is right for you? Check out the table below to help you decide:
|
Insurance Type |
Coverage Details |
Mandatory/Optional |
|
Third-Party Liability Insurance |
Covers damage and medical expenses for third parties if you’re involved in an accident |
Mandatory (Required by Law: Included with Our Rentals) |
|
Collision Damage Waiver (CDW) |
Covers damage to the rental car’s body (dents, scratches, etc.) in the event of an accident, subject to an excess self-risk amount (deductible) |
Included with Our Rentals |
|
Super Collision Damage Waiver (SCDW) |
An add-on to CDW that reduces your financial liability by lowering the excess deductible amount |
Optional |
|
Theft Protection |
Covers the risk of vehicle theft (note: does not cover personal belongings inside the car) |
Included with Our Rentals |
|
Gravel Protection |
Protects against damage from loose gravel, rocks, and impacts on critical areas like headlights, windshield, and the front body, especially important for 4x4s on rugged F-roads |
Optional (Highly Recommended for 4x4 Rentals on F-Roads) |
|
Sand and Ash Protection |
Covers damage to the vehicle’s body caused by sand particles or volcanic ash, which can occur during strong winds or eruptions |
Optional |
|
Tire Protection |
Covers tire damage, including punctures and blowouts, and is especially valuable during winter or when using snow tires |
Optional |
|
Liability Waiver |
Reduces the deductible on all other insurances to $0, offering comprehensive coverage for additional risks, except for excluded damages like undercarriage, water, and wind damage. |
Optional (Highly Recommended) |
Visit our extras page to get all the details on our insurance add-ons to make the best choice. The right insurance makes your trip a lot less stressful.
FAQs
Below you will find some answers to some of the most frequently asked questions we receive:
What is Third-Party Liability?
Third-party liability insurance covers damage and injuries to others involved in the accident.
What Is Self-Risk?
Self-risk is another name for the excess or deductible you will pay if your vehicle is damaged. It dictates the most you will pay.
What Insurance Do You Recommend for Renting a Car in Iceland?
We recommend the zero-excess (liability waiver) insurance for the ultimate peace of mind. At the least, you should consider adding gravel protection and sand and ash protection due to weather and road conditions.
What Is Not Usually Covered by Car Insurance in Iceland?
No matter how much insurance you choose, some things are almost never covered, including water damage from river crossings, wind damage to doors, animal collisions, roof damage, and undercarriage damage. You are not covered for driving off marked roads. Car towing is also often extra.
How Necessary Is Gravel Insurance for a Rental Car in Iceland?
In a country with many gravel roads, especially in remote regions, we highly recommend that visitors take gravel insurance as an add-on. You never know when you might encounter a gravel road. They aren’t limited to F-roads.
What Does CDW Cover in Iceland?
CDW covers the cost of the damage to your rental vehicle, but in most instances, you’ll still need to pay a self-excess amount, unless you upgrade to the liability waiver package.
Can You Decline CDW in Iceland?
Yes, but remember that many rental agencies include this, along with the mandatory TPL insurance. Also, keep in mind that if you decline and anything happens, you will be held liable for all costs up to the total amount of the entire vehicle! Even if you have third-party insurance, such as credit card insurance, you will need to pay upfront.
Does my credit card cover car rental in Iceland?
Credit card coverage varies, so you should check with your provider to determine if Iceland is covered and if there are any restrictions, such as vehicle type. You should also keep in mind that credit card coverage requires paying for damages upfront and seeking reimbursement from them later.
Iceland Car Rental Insurance: Do Your Research
Most rental companies in Iceland advertise low base prices, but by the time you add on all the essential protections, you’re paying more. Those costs can quickly add up. When you rent a car from Cars Iceland, we take a different approach: we include the most important coverages upfront, so you’re not surprised later.
|
Coverage |
Cars Iceland |
Other Rental Agencies |
|
Third-Party Liability (TPL) |
Included |
Included |
|
Collision Damage Waiver (CDW) |
Included |
Often Extra |
|
Theft Protection |
Included |
Often Extra |
|
Personal Accident Insurance |
Included |
Often Extra |
|
Gravel Protection |
Optional |
Optional |
|
Sand & Ash Protection |
Optional |
Optional |
|
Tire Protection |
Optional |
Optional |
|
Zero-Deductible Option |
Available |
Limited/Expensive |
With Cars Iceland, you start with more protection already included, not added later at checkout. That means fewer surprises, fewer hidden fees, and a clearer total price from the beginning.
If you want to avoid unexpected costs and drive with complete peace of mind in Iceland’s unpredictable conditions, choosing the right insurance from the start isn’t just helpful; it’s necessary.
