Renting a car in Iceland is the best way to explore the country, but the wrong insurance choice could turn your road trip into a costly mistake. Iceland’s unique driving conditions, including gravel roads, strong winds, and unpredictable weather, make car rental insurance essential. No one expects to be involved in an accident, but they are called accidents for reason. It’s important to be prepared when they happen, especially when you’re in a foreign country on holiday.
In this guide, we will break down Iceland car rental insurance tips to help you choose the best coverage for your trip and avoid unexpected expenses. Whether you’re visiting for a short stopover or an extended road trip, understanding insurance options will ensure peace of mind.
Related links: Check the Iceland car rental price
Table of Contents
- Types of Iceland Car Rental Insurance
- Additional Iceland Car Rental Insurance Options
- Is Car Insurance Necessary in Iceland?
Types of Iceland Car Rental Insurance
There are many Iceland rental car insurance packages available. Some of these come included with your rental car, while others cost extra. For people on vacation in Iceland, it’s important to know the differences between them and why they are structured the way they are.
There are mandatory insurance packages that come with rental cars in Iceland. These insure against liability to others in case of an accident, and the cost is built into your rental car fee. Optional fees that insure against damage to the rental car come at a small additional fee.
Here is the list of mandatory insurances that come with the rental car:
Third-Party Liability Insurance, Tpl (AKA Pai)
- Third-party liability insurance protects the holder from liability to a third party in case of an accident involving two cars, or a car and property. This means that if you are involved in a crash with another car or property, the insurance company will be held liable for any damage done to the other person’s car or property.
- Third-party liability is included in your coverage package as it is mandatory in Iceland. When you book any rental car with Hertz Iceland the cost of TPL is built into your overall rental fee, so you won’t have to pay any extra for it.
Collision Damage Waiver, CDW
- Collision Damage Waiver reduces your financial liability for damage to the body of your rental car. However, this doesn’t include damage done to the undercarriage of the car, windshield, glass or the tires. There is no insurance available in Iceland that will cover the undercarriage of cars. Incidents of theft and vandalism also aren’t covered by the CDW insurance.
- The CDW insurance is included in your coverage package when you book any rental cars with Hertz Iceland and comes with a non-waivable excess fee (N.W) which will vary based on the car you’re renting. Even with this insurance, you will still need to pay a small non-waivable excess fee in the event you are in an accident.
Super Collision Damage Waiver, SCDW
- As the name implies, the Super Collision Damage Waiver is essentially an upgraded version of CDW. It allows for a lower non-waivable excess fee than the basic Collision Damage Waiver. That means that if you incur any damages to the vehicle, you won’t have to pay as much for any damage costs. This Iceland car insurance is highly recommended as the road conditions in Iceland can be challenging, creating a higher risk of vehicle damage.
Theft Protection, TP
- Theft Protection is available with every Hertz Iceland rental and safeguards you from financial liability if your rental car is stolen (whether in part or in full), provided it has been used according to the rental agreement.
- While Iceland is generally a safe destination, tourists can still be targets for theft. Including Theft Protection in your coverage package ensures peace of mind, protecting you from unexpected costs in the rare event of vehicle theft.
Sand and Ash Protection, SAAP
- Sand and Ash Protection (SAAP) is available with all Hertz Iceland rentals and is essential for driving in Iceland’s unique landscape. As a volcanic island, Iceland is prone to ash storms and strong winds that can cause significant damage to your rental car.
- SAAP covers damage caused by sand, gravel, ash, and other natural debris—risks that standard insurance policies do not include. Without this coverage, renters are fully responsible for any damage from these elements, which can lead to costly repairs. It’s a good idea to add SAAP, especially if you plan on traveling through Iceland’s more rugged and exposed areas.
Windshield Protection (WSP or WP)
- Windshield Protection covers damage to the windshield and headlights caused by gravel thrown up by passing or oncoming vehicles. With this coverage, renters are not financially responsible for repairs to these areas.
- However, keep in mind that Windshield Protection does not cover damage caused by sand or ash storms. For full protection against volcanic ash and airborne debris, consider adding Sand and Ash Protection (SAAP) to your rental package.
Additional Iceland Car Rental Insurance Options
While not as essential as the options above, these additional Iceland car rental insurance options will help safeguard you against unexpected damages.
Tyres and Wheels Protection (Also Named Tire Insurance)
- This insurance is not offered by most car rental companies in Iceland
- It can protect you from the damages made to tires and wheels
Door Protection
- This insurance is not offered by most car rental companies in Iceland
- It can protect you from the damages made to car doors. The heavy winds in Iceland frequently cause car door damage, with this protection, these damages could be covered
Animal Encounter Protection
- This insurance is not offered by most car rental companies in Iceland
- It can protect you in the event of a collision with an animal (Icelandic sheep for example), or in the event that some wayward animal comes by and scratches your rental car
Is Car Insurance Necessary in Iceland?
Is car rental insurance in Iceland an essential expense? The short answer: absolutely. No matter where you drive, accidents and unexpected damage can happen, and in Iceland, the risks are unique. Without the right coverage, a simple mishap could cost you thousands and turn your dream road trip into a financial nightmare.
Iceland’s breathtaking landscapes come with challenging driving conditions. Mountain roads are often unpaved, with loose gravel that can crack windshields or chip paint. Volcanic ash and sandstorms can cause extensive damage, and without proper insurance, you’ll be responsible for costly repairs. Winter conditions add another layer of risk—icy roads and hidden rocks can damage your car’s undercarriage, which no insurance policy covers. Even opening your car door on a windy day can lead to unexpected damage, as strong gusts can force doors beyond their limit.
If you plan to explore Iceland’s coastal regions, be aware that high tides and saltwater spray can corrode your vehicle’s engine and exterior. And while Iceland’s wildlife is part of its charm, animals like sheep often wander onto roads, increasing the risk of collisions. Beyond Iceland’s unique hazards, there are also everyday risks like theft, fender benders, and accidental damage. Without insurance, any of these incidents could leave you with an unexpected bill.
Choosing the right insurance ensures that no matter what happens, you’re financially protected—so you can focus on enjoying your adventure.
How Much Does Iceland Car Insurance Cost?
Prices for insurance policies differ based on a number of factors, ranging from the car type/model to the type of policy being purchased.
- The price for CDW for a small car is 3,190 IKr ($22.77) per day, while the same policy for 4×4 SUVs, Jeeps, Vans, and Trucks costs 4,090 IKr ($29.20) per day.
- Similarly, SCDW for a small car would cost 1,990 IKr ($14.21) per day, while the same policy for 4×4 SUVs, Jeeps, Vans, and Trucks costs 2,990 IKr ($21.35) per day.
- Theft Protection for smaller cars as well as for SUVs is priced at 990 IKr ($7.07) per day.
- Sand and Ash Protection for a small car is priced at 1,990 IKr ($14.21) per day while the same policy for 4×4 SUVs, Jeeps, Vans, and Trucks costs 2,990 IKr ($21.34) per day.
*Info updated in February 2025. Please refers and based on our insurances and extras pricelist for the latest rate and price.
Hertz Iceland offers car coverage packages, with 0 excess
If you don’t wish to purchase each policy separately, you can take advantage of the car coverage package offered by Hertz which encompasses the SCDW, Theft Protection, and the CDW policies.
The car coverage package comes at a lower price than the total of all three policies combined and is a great way to save some money while getting the most value for
You can also get as much as 40% off the car coverage package if you book with Hertz in advance online.
You can buy a MAX cover package with 0 excess when you pick up your car
Committed to creating an unburdened Iceland self-drive trip for you and your family, Hertz Iceland newly launched a brand new MAX coverage package which contains all insurances items we have available; it includes:
- CDW
- SCDW
- TPL (also named PAI)
- TP
- WP (also named WSP)
- GP
- SAAP
- Tyres and wheels
By getting this coverage package with your rental car in Iceland, you can enjoy the ZERO self-excess in case of any damages, which are covered by the insurance items listed above.
This new package is available at the rental desk in ALL Hertz Iceland car rental stations. Regardless you are renting your car at the KEF international airport arrival hall, Reykjavik downtown or Akureyri. If you are interested, don’t forget to ask our staff members more about this when you pick up your car!
What is self-risk/ self-excess/ self-liability in car insurance?
These three terms all mean the same thing. They refer to a renter’s ability, and choice to insure themselves against the possibility of damage to the vehicle from an external insurance provider or not insure themselves at all. This means that the renter is willing to be held liable in the case of any damages to the rental car and will pay out of pocket to remedy those damages. This can be done instead of having the insurance company or rental company cover the expenses from a charged insurance premium.
The benefit of self-liability is that you get to keep your money if the car goes unscathed. Whereas a premium on insurance cannot be retrieved whether or not the car is damaged.
However in the same vein, a major drawback is that should the car get damaged, the renter will be liable to the full extent of the damages from their own pocket. This can run into thousands and end up ruining your holiday in Iceland.
Car insurance in Iceland usually comes with a maximum self-risk clause, the better(and pricier)the insurance, the lower the maximum self-risk. The benefit of having the max self-liability is that you will not need to pay the full amount but upon the maximum self-excess, when there is car damage.
What is NOT covered in the car insurance for your rental car in Iceland?
Even though the CDW and SCDW insurance policies cover most probabilities of damage to the car, there are still some incidents not covered by them and some clauses to take note of.
Policies and packages will not cover:
- Damage to the car caused by the negligence of the driver which includes drink-driving or driving under the influence of substances that impair the ability to handle a car, as well as damage resulting from test-driving or car racing.
- Damage caused by revolution, riots, civil unrest, riots, and warfare.
- Damage caused by wildlife.
- Damage caused by driving into mountainous highlands, which could result in damage to the engine, transmission shaft, or any other parts of the vehicle.
- Damage to the car caused by driving on prohibited areas e.g., banks of snow, watercourses, or trackless places.
- Damage that affects only the suspension, wheels, glass, tires, batteries, and radio equipment.
- Damage caused by the theft of any parts of the vehicle.
- Damage caused by driving on roads specially marked “F” on public maps.
- Damage due to water. This, as well as damage to the bottom of the car, is not covered by any insurance policy.
- Damage due to sand, ash gravel, or any other earthy material.
- Damage caused by anyone other than the registered driver of the vehicle when renting will not be covered. If there will be more than one driver, ensure to register extra drivers at the point of renting.
- Any loss of property of the renter that occurs as a result of the car being stolen.
Is it ok to rely on the insurance provided by your credit card?
You might decide to rely on the insurance provided by your credit card. However, you should only do so with full knowledge and understanding of the extent to which your credit card covers you. It’s important to consult your credit card company and have them explain to you the full extent of coverage they provide, before deciding to rely solely on them.
What should you do when you have car damage in Iceland?
In case of medical emergencies, Iceland’s emergency number is 112. In case of vehicular breakdowns which do not constitute medical emergencies, you can find the steps to take depending on the nature of the emergency here.
Rental car coverage in Iceland
Including a coverage package in your Iceland car rental should be a non-negotiable. With different policies available you can pick the one that corresponds with the level of risk that you’re willing to take, but we’d always recommend being on the safe side and purchasing comprehensive coverage.
For more information about renting a car in Iceland and tips for planning a road trip, you can read more of our articles about renting a car in Iceland. You can also reach out to us if you have any questions at hertz@hertz.is. And always make sure to book your rental car online and in advance to ensure you get exactly the vehicle you want for your road trip in Iceland.
