Iceland Rental Car Insurance: Everything You Need to Know

13-06-2025

Renting a car is one of the best ways to explore Iceland’s breathtaking landscapes. However, when renting a car in Iceland, you might be slightly bamboozled by all the insurance options. Don’t worry, we’re here to help you figure it all out!

It’s important to understand which Iceland car rental insurance you need for your trip, so you’re fully covered and protected during your Iceland vacation, especially with the different road types, terrain and weather conditions you’ll find across our magical island.

This Iceland rental car insurance guide will walk you through every insurance option, provide real-world advice, and help you avoid costly surprises, so you can enjoy a smooth and stress-free Icelandic adventure!

Why Rental Car Insurance is Essential in Iceland

If you’re wondering ‘do I need rental car insurance in Iceland?’, the answer is yes. Iceland car rental insurance is necessary when driving a rental car in Iceland.

Iceland’s stunning natural beauty comes with challenging driving conditions. Strong winds, gravel roads, wild terrain, sudden sandstorms and unpredictable weather mean the risk of vehicle damage is higher here than in many other countries. Having the right insurance will protect your finances and peace of mind while allowing you to fully enjoy the journey.

While there are many types of insurance to consider when driving in Iceland, there are two basic insurances to be aware of: Third-Party Liability (TPL) and Collision Damage Waiver (CDW).

TPL is a legal requirement, so it’s often included in Iceland rental car prices automatically. It’s also helpful to know that TPL may sometimes be bundled under CDW in the terms of your rental agreement. Now, let’s explore more about the other types of Iceland car rental insurance you’ll come across.

Understanding Iceland’s Unique Road Conditions

First of all, what are Iceland’s road conditions like? Here’s a quick run-through of the main road types and unique road conditions you may come across in Iceland:

• Gravel roads – Once you venture off the main Ring Road in Iceland (Route 1), you’ll find that unpaved, gravel roads are fairly common. Loose stones on these roads can easily chip paint and crack windshields.
• F-roads – If you want to visit the Icelandic Highlands, you’ll need to drive on Iceland’s F-roads. These are rough mountain tracks requiring 4x4 vehicles and extra insurance.
• River crossings – Some F-roads contain river crossings, so you’ll need to make sure your car is properly equipped and insured for traversing through shallow water.
• Narrow bridges – Sometimes you’ll come across narrow bridges, which are often one-lane and require caution, especially when weather conditions cause limited visibility.
• Unpredictable weather – Iceland’s weather is famously changeable, meaning conditions can change suddenly. Snow, rain or fog can quickly change road conditions, so we recommend keeping up-to-date with the latest information about road conditions in Iceland during your road trip.

Common Weather and Road Hazards to Be Aware Of

It’s also good to be aware of particular weather and road hazards in Iceland.

• Strong winds – Winds can be very strong in Iceland, even reaching speeds that can rip car doors off if not held firmly. South Iceland is known as the windiest area of Iceland and it’s also the most populated area of the island with lots of amazing sights to see.
• Sand and ash storms – When winds are strong, it can also cause sand and ash storms, particularly in the South near volcanic areas.
• Icy roads – Many roads across Iceland are closed during the winter season due to harsh weather conditions, including the mountainous F-roads leading to the interior of the country. Route 1 is well-maintained throughout the year, but other roads outside Reykjavik during winter may be icy.

Types of Rental Car Insurance in Iceland

If you’re wondering ‘what rental car insurance should I get in Iceland?’, let us help you answer that question by exploring the different available Iceland rental car insurance options. Here’s a list of Iceland car rental insurance packages you can choose from:

• Third-party Liability (TPL)
• Collision Damage Waiver (CDW)
• Super Collision Damage Waiver (SCDW)
• Theft Protection (TP)
• Gravel Protection (GP)
• Sand and Ash Protection (SAAP)
• Tire Protection 
• F-roads Protection

Understanding your Iceland rental car insurance options is key to picking the right coverage for your trip, so let’s dive into each type of insurance in more detail to equip you with all the knowledge you need for your Iceland vacation. We’ll also include real-life scenarios and estimated damage costs to demonstrate how each type of insurance can be helpful.

Third-Party Liability (TPL) – Mandatory Insurance

Required by Icelandic law, TPL covers damage or injuries you cause to others. As it’s a legal requirement, this type of rental car insurance is usually included automatically in your rental cost.

Real-life scenario: If you rear-end another car on a slippery road, TPL covers their repair costs and medical expenses.

Collision Damage Waiver (CDW) & Super CDW (SCDW) – Reducing Your Self-Risk

CDW is usually included in the cost of your Iceland car rental, and covers most of the damage in case of an accident, leaving you to pay the difference between the cost of the damage and the excess self-risk amount included with the insurance package.

SCDW insurance is an add-on to the standard CDW insurance that you can choose to purchase, which significantly lowers the self-risk amount that you would need to pay in the case of an accident. Getting SCDW insurance in Iceland is definitely handy with the sometimes unfavorable and hazardous road and weather conditions. So, in summary:

• CDW: Reduces your financial responsibility if your car is damaged. You still pay a deductible (self-risk amount).
• SCDW: Lowers the deductible significantly, often from around $2,000 USD to $300–$500 USD.

Tip: Always check what your deductible is, as it varies greatly by rental company.

Gravel Protection (GP) – Is It Really Necessary?

If you’re wondering whether you need Gravel Protection insurance in Iceland, the answer is yes, almost always! That’s because gravel is almost everywhere across the island, even on well-traveled routes. GP covers windshield cracks, paint chips and body scratches caused by flying stones.

Estimated gravel damage cost without insurance:

• Windshield replacement: $600–$1,200 USD
• Body repainting: $1,000–$3,000 USD

Sand and Ash Protection (SAAP) – Who Should Get It?

A unique insurance package in Iceland, Sand and Ash Protection (SAAP) insurance covers you in case of damage sustained to your rental vehicle caused by volcanic ash and sand. With active volcanoes on the island and famously strong winds that can whip up sand and ash, this insurance is definitely a handy add-on for travelers.

If you plan to drive in southern or eastern Iceland, definitely get SAAP. Sandstorms in this area of the country can strip paint from cars, causing thousands of dollars in damage.

Example damage without SAAP:

• Full repaint after sand damage: $3,000–$7,000 USD

Tire Protection – Avoid Unexpected Costs on Iceland’s Roads

Potholes and sharp stones can easily puncture tires, especially on rural roads. Another optional Iceland car rental insurance type, Tire Protection covers repairs and replacement costs, saving you around $300–$600 per tire. We recommend this type of insurance protection for those planning to travel to more remote locations across Iceland.

F-Roads Protection – Special Coverage for Highland Routes

Some Iceland car rental agencies offer specialist F-roads Protection insurance, which is certainly advisable to take if you plan to traverse these mountainous roads in Iceland. If you plan to explore Iceland’s interior, you'll need both a 4x4 vehicle and this special F-roads insurance, which covers the high risks associated with crossing rivers, navigating bumpy, uneven terrain and remote breakdowns. 

Theft Protection – Is It Worth It in Iceland?

While Iceland has one of the lowest crime rates in the world, Theft Protection can still offer peace of mind. Keep in mind, however, that theft of vehicle contents is usually not covered – it only covers the car itself.

Comparing Iceland Car Rental Insurance Options

For a quick comparison, take a look through this table of Iceland car rental insurance options:

Iceland car rental insurance type	What it covers	Estimated cost (USD $ per day)	Recommended for
Third-Party Liability	Damage to others	Included	Everyone (mandatory)
Collision Damage Waiver	Damage to your rental car	Included	Everyone
Super CDW	Lowers deductible	10-20	Everyone
Gravel Protection	Damage from gravel	8-15	Ring Road, Highlands, rural roads
Sand and Ash Protection	Sand or ash storm damage	10-20	South and East Iceland trips
Tire Protection	Tire punctures or blowouts	5-10	Rural travelers
F-Road Protection	Highland/F-road driving	15-30	Highland adventurers
Theft Protection	Vehicle theft	5-10	City travelers

Estimated Damage Costs for Common Incidents

If you’re wondering whether rental car insurance in Iceland is worth it, you can take a look at a summary of some estimated damage costs in the table below:

Incident	Estimated repair cost without insurance (USD $)
Windshield crack	600-1,200
Gravel paint damage	1,000-3,000
Sandstorm paint damage	3,000-7,000
Tire replacement	300-600
Broken car door (wind)	2,000-4,000

Our Iceland Cars Rental Insurance

Here at Iceland Cars, we have three unique insurance plans available for our customers to choose from:

• Silver Insurance Plan – This Iceland car rental insurance plan comes as standard with every one of our rentals. Collision Damage Waiver (CDW), Super Collision Damage Waiver (SCDW) and Thief Protection (TP) insurances are all included in this insurance package. It’s important to note that the self-risk amount on the TP is 0 ISK, but the self-risk amount on the SCDW is 150,000 ISK (about $1098 USD).
• Gold Insurance Plan – In addition to all the insurances included in the Silver Insurance Plan, the Gold Insurance Plan also includes Sand and Ash Protection and Gravel Protection, which are some of the most common forms of damage to vehicles in Iceland. This insurance package is ideal if you intend to stick to Iceland’s easier-to-drive roads. The self-risk amount for this plan is 65,000 ISK (about $476 USD).
• Platinum Insurance Plan – This comprehensive insurance package for car rental in Iceland is the best insurance plan any car rental company can offer, as it covers most damages with 0 ISK deductible/self-risk and even includes free Wi-Fi. Including coverage for water damage and engine/transmission damage, the Platinum Insurance Plan is our suggested insurance for car rental in Iceland for any Highland adventures, as you may encounter river crossings and rough terrain, especially on Iceland’s mountainous F-roads.

How to Choose the Right Insurance for Your Trip

If you’ve already got an idea of what you’d like to do and where you’d like to travel during your Iceland adventure, take a look through this handy list of the best insurance to get for each type of trip:

Best Insurance Package for a Ring Road Trip

• Gravel Protection
• Super Collision Damage Waiver
• Optional: Tire Protection

Best Insurance for Highland and F-Road Adventures

• F-Road Protection
• Platinum Plan (with 0 deductible)
• Tire Protection

Note: A 4x4 vehicle is mandatory for F-roads.

Best Insurance for Winter Travel in Iceland

• Super CDW
• Tire Protection
• Optional: Sand and Ash Protection (for South Iceland)

Essential Tips for a Hassle-Free Car Rental Experience

Now, we’ll give you some top tips and important info to keep in mind when choosing your Iceland car rental insurance package.

Reading the Fine Print – What’s Usually Not Covered

Sometimes, specific types of damage are not covered by an insurance package, so it’s a good idea to read the policy in detail to make sure it covers everything you need. Some examples of damage type that may not be covered are: 

• Damage from river crossings (even with F-road insurance)
• Damage from negligence (e.g., reckless driving)
• Damage to the undercarriage or roof
• Wind damage to doors (unless specified)

How to Avoid Wind Damage to Car Doors

We’ve mentioned the danger of car doors being damaged in the wind, but how can you mitigate the risk of this? Here are our tried-and-tested top tips to help you avoid any damage to car doors:

• Always hold your door with both hands when opening it, even if the wind feels mild.
• Park facing the wind when possible.
• Use sheltered parking spots at attractions.

Hidden Fees and Charges to Watch Out For

Some hidden charges that it’s important to be aware of are:

• High fuel refill fees
• Cleaning fees for excessively dirty cars
• Extra driver fees
• Young driver surcharges (under 25)

Frequently Asked Questions (FAQ)

Can I rely on my credit card insurance for coverage?

Sometimes, but credit card insurance often excludes gravel, sand and F-road damage, which are key in Iceland. Always read the fine print carefully.

What happens if I refuse additional insurance?

You'll be liable for all repair costs up to the deductible, which can easily exceed $2,000–$5,000, depending on damage.

Is there an insurance bundle with zero deductible?

Yes, many companies offer a Platinum or Premium package with $0 deductible, covering nearly all incidents except negligence and river crossings. Here at Iceland Cars, our Platinum Insurance Plan offers a $0 deductible.

Does insurance cover river crossings on F-Roads?

Usually, Iceland car rental insurance doesn’t cover river crossings, even with F-road insurance – crossing rivers is at your own risk. This is due to the high cost of repairing water damage and the high risks that river crossings pose, especially for inexperienced drivers.

How do I handle a car accident or damage report in Iceland?

• Call emergency services if needed (112).
• Contact your rental company immediately. Make sure to keep the contact info of your rental company to hand throughout your trip.
• Take photos of the scene and damage.
• Fill out an accident report form provided by the rental company.

Iceland Car Rental Insurance Tips

Here are our top Iceland car rental insurance tips to keep in mind to make sure your Iceland road trip goes as smoothly as possible.

• Maybe skip the theft insurance – If you’re looking for a way to cut costs with your Iceland car rental insurance, we’d recommend skipping the theft insurance if you wanted to skip any insurance type, as the risk of theft is very low in Iceland. Of course, it’s better to have full coverage, so this has to be an informed decision that you’ve carefully thought through.
• Have either GPS or data for navigation – It’s important to have some means of navigating when heading out on Iceland’s road network, particularly when traveling in remote, rural areas. You can likely rent a GPS from your car rental agency or you can use your phone data if you have enough.

Enjoy Your Very Own Epic Iceland Adventure!

Ready to plan your own dream Iceland vacation? How exciting! Take a look through our affordable and reliable Iceland car rental options to get started.

Driving in Iceland is an unforgettable experience, and choosing the right insurance package can save you thousands of dollars, and a lot of stress. So, plan ahead, understand your coverage, and drive carefully to make your Iceland road trip the adventure of a lifetime!