When renting a car in a new country, it’s essential to ensure you get a car rental insurance. But that's not it, you should also get the correct car rental insurance. Likewise, it is crucial to actually understand what you’re getting.

In this article, we discuss Iceland car rental insurance in-depth. We'll help you discern between the essentials and the nice-to-haves. What comes included with your rental (they’re mandatory by law), and those that will require a little extra out-of-pocket.

Empowered with this knowledge, you’ll have a better understanding of rental car insurance in Iceland. You will, as a result, make better decisions when it comes to saying “yay” or “nay”.

What Insurance Can I Get for my Car Rental in Iceland?

You will find many of the same rental car insurance in Iceland as you do back home. Perhaps just not with the exact fine print, so remember to always double-check.

With a country as unique as Iceland come equally unique insurance requirements—whether you're renting a car in Reykjavík or at Keflavík. Many travelers aren't accustomed to the unpredictable weather and challenging road conditions found here, making it essential to understand which insurance options are available and when you might need them. These options include:

  • Third-party Liability Insurance

  • Collision Damage Waiver

  • Super Collision Damage Waiver

  • Theft Protection

  • Gravel Protection

  • Sand and Ash Protection

  • Tire Protection

  • Liability Protection

Third-party Liability Insurance

This is the basic insurance for any car hire in Iceland. It covers any damage or medical expenses for other people if you're involved in an accident. Since Third Party Liability (TPL) insurance is required by law here, it's usually included with your rental.

Collision Damage Waiver

Collision Damage Waiver is also an insurance that’s usually included with your car rental. With this insurance, the body of your rental car is covered in case of an accident. This means that any dents or scratches will be fixed. In these cases, there will always be an excess self-risk amount.

This means that if the damage is below the excess self-risk amount, you will pay for the damage itself. If the amount is over the excess self-risk amount, you will merely pay the difference between the damage and excess self-risk amounts.

Super Collision Damage Waiver

It may sound like the ultimate Collision Damage Waiver, but the name is a bit misleading. SCDW is an add-on cover to existing CDW and merely manages your financial liability in the case of an accident. So, if anything should happen, you will pay less than the excess CDW. Exactly how much less will depend on the insurance option you’ve chosen.

Theft Protection

As the name suggests, this will cover you against vehicle theft. It’s important to note that it does not cover you for any contents inside the vehicle.

This add-on insurance is a tricky one, as it’s 100% your prerogative whether you take it or not. Iceland is notorious for its safety. In fact, it still reigns supreme as the safest country in the world, officially. But you get thieves everywhere – even on our little island.

Gravel Protection

Gravel Protection is an essential insurance add-on, especially if you're opting for a 4x4 rental in Iceland. It's highly recommended for anyone planning to explore the island extensively—particularly in the remote regions or the Highlands where gravel roads and F-roads are common. 

The F-roads in Iceland are not for the faint of heart. They can only be tackled by 4x4 vehicles and they should be taken on by those with adventurous spirits. The F-roads are clearly marked on certain road maps of the island. So check to see if you will be traveling on any of them in terms of your planned trip itinerary.

The F-roads are especially prevalent in the Westfjords and the Highlands. With this rough terrain comes countless risks, and this is precisely what this insurance is for. 

This coverage protects your vehicle from damage caused by loose gravel and rocks, covering critical areas like the headlights, windshield, and front body. Given the nature of Iceland's roads, this extra layer of protection can save you from costly repairs and help ensure a smoother adventure.

Here, it’s important to remember that there are many little streams and rivers to cross around the island. Yet, none as extreme as some you can come across on the F-roads. Insurance rarely covers water damage or a towing/rescue service.

Sand and Ash Protection

This is a very unique insurance for the island and its risks. The insurance covers you against any damage to the body of the vehicle due to sand or ash. This may happen if the legendary Iceland winds pick up sand. These particles may end up being slammed against your car.

Ash can happen when visiting one of the active volcanos on the island or when there’s another eruption. The current stats say there will be at least one every 4 years.

Tire Protection

This insurance covers the tires of the vehicle against any damage. This damage can include a burst tire or punctures. And once it's winter, and you’re driving with snow tires in Iceland, there will be other damage risks as well. But once again, this cover is optional, but is highly recommended for those traveling the “roads less traveled” on the island.

Sometimes, this protection isn’t available on its own—it’s bundled with other coverages. At Cars Iceland, we include it as part of our liability waiver option, ensuring you have comprehensive protection without any extra hassle.

Liability waiver

For those looking to rent a car in Iceland, Cars Iceland offers comprehensive insurance options designed to give you peace of mind on the road. 

Our unique liability waiver insurance reduces the deductible from all other insurances to 0, covering everything from damage to the car’s underside to wind-blown door damage and water-related issues. Whether you’re cruising the Golden Circle or tackling the rugged Highlands, we provide the expertise and coverage to make your journey completely worry-free.

Car Rental Insurance Comparison - Peace of mind!

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; Typically Included)
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. Typically Included
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). Optional
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 (Recommended for Off-Road/4x4 Rentals)
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 or bursts, 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 such as damage to the car’s underside, wind-blown doors, and water-related issues. Optional (Highly Recommended)

Looking for the perfect insurance option to match your adventure? Visit our Extras page to explore all our insurance plans in detail—from prices to coverage specifics. Whether you're curious about our bundled liability waivers or need extra protection for your 4x4 rental, you'll find everything you need to make an informed choice. Check it out now and drive with peace of mind!

Iceland Car Rental Insurance Tips

If this is your first trip to the island, the following insurance tips, and Iceland driving advice will come in handy:

  • If you want to save on insurance costs, cut the theft cover. The risk in Iceland is very low.

  • Ensure that you remember your driver’s license in Iceland! Otherwise, you will not be able to rent a vehicle in the first place and keep your license with you. If you get in an accident and you do not have your license with you, your insurance might not pay out.

  • Hold on to your door when getting in and out of the car. The Icelandic winds can be so extreme that it causes damage to the doors and is even known to blow them clean off!

  • Do not stop along the side of the road. Not only is it dangerous, but it’s illegal in Iceland. Should anything occur, your insurance will not cover you.

  • Strictly adhere to Iceland’s road signs and Iceland speed limits. If something should happen and it was due to your own negligence, the insurance won’t pay out.

  • Ensure that you properly inspect the car before driving off the car rental lot. You don’t want to be liable for dents and scratches that you were not responsible for.

  • Iceland has free-roaming sheep, horses, and birds, and it’s not uncommon for them to be found crossing the roads in Iceland. So, stay focused and keep your eyes open to not hit an animal. Some rental agencies have insurance options for this too, so please inquire if this is something you’re nervous about.

  • Except for SCDW which limits your financial liability when it comes to excess. Certain rental agencies also offer Liability Waiver Insurance. This type of insurance essentially covers you for any excess that is owed. If this is something you might be interested in, please inquire with your rental agency.

What to do if Your Car Gets Damaged in Iceland

If any accident should occur, the first thing to do is to ensure that everyone involved is not injured. If everyone is fine, it’s time to assess the damage. Take photos and get the details of any third party that was involved.

You should then contact your rental agency. They will assist you with any/all necessary paperwork to complete the insurance claim and settle any outstanding amounts. Always make sure to get in touch with your rental agency before calling for roadside assistance. The towing service can be quite expensive and might not be covered by your rental company.

In case you need roadside assistance, if the company that rented your car doesn’t do it for you, call the 112, the single emergency number in Iceland. You can also get in touch with 24ra.is, a private network of roadside assistants.

FAQs

Below you will find some answers to some of the most frequently asked questions we receive:

What is Third-Party Liability?

This is insurance that covers the third party’s damage. Please refer to a more detailed explanation in our article above.

What Is Self-Risk?

You might know self-risk as the ‘deductible’ or the ‘excess’. This is the maximum amount that you would be liable for in terms of the damages that the insurance covers.

What Insurance do you Recommend for Renting a Car in Iceland?

We do recommend that everyone gets a liability waiver, or at least Gravel Protection and Sand and Ash Protection.

What is not Usually Covered by Car Insurance in Iceland?

There are quite a few things that are not covered whatsoever. So, it’s important to have a conversation with your rental agent beforehand to establish your needs and qualm any fears.

Some of the damages that are not usually covered include animal collision, damage to wheels, water damage, and car towing. Damage caused by driving off the demarcated road or driving on unauthorized roads as well as damage to the roof of the car are not covered either.

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 this add-on cover.

What does CDW Cover in Iceland?

This covers the cost of the damage to your rental vehicle, but in most instances, you’ll still need to pay a self-excess amount.

Can you Decline CDW in Iceland?

Yes. But remember that many rental agencies have this included along with the mandatory TPL insurance. Also, keep in mind that if you decline and anything should happen, you will be held liable for all costs up to the total amount of the entire vehicle!

Iceland Car Rental Insurance; Do Your Research!

There is nothing that can derail your holiday quicker than a sudden insurance claim hanging overhead. And it gets even worse when it is revealed how much you’ll be paying out of pocket or that you’ll be liable for all costs due to unread small print.

That’s why you must do your research. Make sure you pick the right car rental company, so they can guide you about the options for these types of situations and answer any question you may have.

Armed with knowledge and the right cover, you can rent a car in Iceland with complete peace of mind.