Car Rental Insurance in Iceland: What’s Usually Included, What’s Not & How to Choose
Car Rental Tips

Car Rental Insurance in Iceland: What’s Usually Included, What’s Not & How to Choose

15.07.2025

Driving in Iceland is a once-in-a-lifetime adventure — but with rugged landscapes, unpredictable weather, and volcanic terrain, car rental insurance is one of the most important choices you’ll make. Many travelers ask on forums and Facebook groups: “Do I really need extra insurance in Iceland?” or “Does my credit-card insurance cover gravel and sand damage?”

This guide breaks down exactly what’s typically included in Icelandic car rental insurance, what isn’t, and how to make the right choice for your trip.

See also: How to Choose the Right Insurance for Your Iceland Car Rental.

What’s Usually Included in a Standard Rental

Toyota SUV on Iceland Gravel Road

At Höldur Car Rental (Europcar Iceland), every rental automatically includes:

  • CDW (Collision Damage Waiver): Protects against major collision costs. You’ll still pay an excess/deductible if damage occurs, but you’re not liable for the full value of the car.
  • Third-Party Liability Insurance: Covers injuries or damages you might cause to others — required by law.
  • PAI (Personal Accident Insurance): Included in our rates according to Icelandic law. PAI provides protection for injuries suffered by you or your passengers and/or a lump sum indemnity if you or your passengers are disabled or if you die because of the collision (or an accident).
  • Theft Protection: Included in our rates and covers you against theft of the vehicle.
  • 24/7 Breakdown Assistance: Peace of mind in case of unexpected issues.

Think of these as the minimum safety net.

What’s Not Covered by Standard Insurance

Here’s where many travelers get surprised. Iceland’s conditions create unique risks that basic CDW usually doesn’t cover:

  • Gravel Protection (GP): Windshield and paint chips from loose stones on gravel roads.
  • Sand & Ash Damage Waiver (SADW): Damage from volcanic ash and sandstorms (common in South Iceland).
  • River Crossings: Renters are solely responsible for any damages incurred from driving in or across rivers.
  • F-Roads: Passenger cars and two-wheel-drive vehicles are strictly prohibited on F-roads. Any resulting damage will not be covered.
  • Undercarriage & Water Damage: Excluded, regardless of coverage.

Optional Add-Ons Worth Considering

To fully protect your adventure, consider these optional add-ons:

  • GP (Gravel Protection): Strongly recommended if you’ll be on gravel or mountain roads.
  • SADW (Sand & Ash Damage Waiver): Vital if driving in South Iceland or during windy seasons.
  • Super CDW: Reduces the deductible significantly.

Höldur offers tailored bundles to simplify the choice.

Credit-Card Insurance vs Local Coverage

Many travelers wonder: “Can I rely on my credit-card insurance instead of buying extras?”

Here’s the reality:

  • Credit-card coverage often excludes Iceland’s most common risks — gravel, ash, and high-wind damage.
  • Claims may require you to pay upfront, then fight for reimbursement.
  • You may still need to buy minimum local coverage to meet Icelandic rental requirements.

Forums like TripAdvisor and Reddit are full of stories where relying solely on credit-card insurance left travelers with hefty bills. Local add-ons are designed specifically for Iceland’s environment.

How to Choose the Right Protection for Your Trip

Ask yourself three key questions:

1. Where are you going?

  • Ring Road only? Stick with CDW + Gravel Protection.
  • Highlands/F-Roads? Add SADW and Super CDW.

2. When are you going?

  • Winter driving? Strongly consider Super CDW + GP.
  • Spring/Summer? Sandstorms in the south can make SADW essential.

3. What’s your risk tolerance?

  • Peace of mind = more coverage.
  • Budget focus = stick with essentials but understand potential liability.

Final Tips for a Stress-Free Rental Experience

  • Always check the deductible amounts before signing.
  • Inspect and photograph the car thoroughly at pick-up and drop-off.
  • Read the fine print on exclusions (undercarriage, river crossings).

The Bottom Line

Car rental insurance in Iceland is less about ticking a box and more about protecting your adventure. The unique landscape means risks are very different from driving in mainland Europe or North America. By choosing the right mix of Super CDW, Gravel Protection, and Sand & Ash Damage Waiver, you’ll enjoy your road trip with confidence — and without nasty surprises.

Explore Höldur’s full protection packages here: Car Rental Coverage Options.

Search for a car!

Back