2025 Iceland Car Rental Insurance Tips: How to Choose the Best Coverage for Your Trip

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? 
• How Much Does Iceland Car Insurance Cost?
• Understanding Self-Risk, Self-Excess and Self-Liability
• What is NOT Covered in Your Iceland Car Rental Insurance?
• Iceland Car Rental Insurance Tips
• Frequently Asked Questions (FAQs)

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)

• Covers flat tires caused by road hazards such as glass, nails, gravel or potholes.
• Very few car rental companies in Iceland offer this insurance.

Door Protection

• Door protection covers you in the event that your car doors sustain damages. This is more common than you might think, as unpredictable strong wind gusts can blow doors wide open and damage the hinges.
• This insurance is not offered by most car rental companies in Iceland.

Animal Encounter Protection

• This specialized car rental insurance in Iceland covers you against damages resulting from collisions with animals, such as Icelandic sheep, or accidental scratches caused by unexpected animal encounters.
• Not all car rental companies in Iceland offer this unique coverage.

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, there are more risks than other destinations. 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 and road 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. Iceland winter conditions add another layer of risk, with icy roads and hidden rocks that 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.

Max Coverage, Zero Excess: Hertz’s Car Coverage Package

Rather than purchasing each type of coverage separately, we recommend taking advantage of the MAX car coverage package offered by Hertz which includes the SCDW, Theft Protection, and 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 ensuring that you’re fully protected.

You can also get as much as 40% off the car coverage package if you book with Hertz in advance online. 

Get the MAX Coverage Package for a worry-free trip

At Hertz Iceland, we’re dedicated to ensuring you and your family enjoy a seamless, worry-free self-drive adventure in Iceland. That’s why we’ve introduced our new MAX Coverage package—a comprehensive insurance solution featuring every protection option we offer. It includes:

• CDW
• SCDW
• TPL (also named PAI)
• TP
• WP (also named WSP)
• GP
• SAAP
• Tyres and wheels

When you add this coverage package to your rental in Iceland, you’ll benefit from ZERO self-excess on any damage covered by our extensive insurance options. Keep in mind that the underbody of the car, car towing fees and damages due to water are NEVER covered by any insurance plan in Iceland.

This package is available at every Hertz Iceland location—whether you’re picking up your car at KEF International Airport, in downtown Reykjavik, or in Akureyri. If you’re interested, just ask one of our team members for more details when you collect your vehicle.

Understanding Self-Risk, Self-Excess and Self-Liability

Self-risk, self-excess, and self-liability all refer to the same concept in car rental insurance. Essentially, these terms describe a renter’s decision to assume responsibility for covering potential vehicle damage out of pocket, rather than transferring that cost to an insurance provider or rental company via a premium.

One key advantage of opting for self-excess is that you save money if the car remains undamaged—you keep the funds that would otherwise be tied up in non-refundable premiums. However, if damage does occur, you’ll be responsible for covering the repair costs, which could amount to a significant sum and potentially disrupt your holiday plans.

In Iceland, rental car insurance typically includes a maximum self-risk clause. With more comprehensive (and usually pricier) insurance options, your maximum self-excess is reduced, meaning you won’t have to bear the full cost of damages when an incident occurs.

What is NOT Covered in Your Iceland Car Rental Insurance?

While the CDW and SCDW insurance policies protect against most potential damage scenarios, certain incidents and clauses still fall outside their coverage

Policies and packages will NOT cover: 

• Damage resulting from the driver being under the influence of intoxicants or is in other respects incapable of controlling the vehicle in a safe manner, 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 any driver not officially registered with your rental agreement will not be covered. If you plan on having additional drivers, please register them at the time of rental.
• Any loss of property of the renter that occurs as a result of the car being stolen.
• Towing fees.
• Damage to the underbody of the car.

What to Do If Your Rental Car Is Damaged 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. 

Iceland Car Rental Insurance Tips

Navigating car rental insurance in Iceland can be complex, but being well-prepared can save you both money and hassle. Here are some essential tips to ensure you’re adequately covered during your adventure:

• Understand Your Coverage Options: Familiarize yourself with the different insurance policies available, such as Collision Damage Waiver (CDW), Super Collision Damage Waiver (SCDW), and additional packages that reduce your self-excess. Knowing what each policy covers, along with its limitations, will help you make an informed decision.
• Consider Additional Coverage: While standard policies cover most types of damage, there can be exclusions. Look into supplemental insurance for incidents like gravel damage or windshield repairs that might not be fully covered under basic policies.
• Register All Drivers: Damage caused by an unregistered driver may not be covered. If more than one person will be driving, ensure all drivers are added to your rental agreement to avoid unexpected liabilities.
• Review Your Credit Card Benefits: Some credit cards offer car rental insurance as a perk, but coverage can vary significantly. Contact your credit card provider to fully understand what’s included and whether it meets your needs in Iceland.
• Inspect the Vehicle Thoroughly: Before you drive off, inspect the car for any pre-existing damage and report it immediately. This helps prevent disputes later on if damage is discovered after you’ve taken possession.
• Know the Claims Process: In the event of damage or an accident, be aware of the proper steps to follow. Keep emergency numbers handy, and document the scene with photos and detailed notes. Promptly notify both local authorities and your rental company to ensure a smooth claims process.

By taking these precautions, you can enjoy your Iceland road trip with confidence, knowing you’re prepared for the unexpected.

Iceland Car Rental Insurance Frequently Asked Questions

• • Should you rely on your credit card’s insurance?
    While credit card insurance might seem like an attractive option, it’s essential to fully understand its scope. Before deciding to rely solely on your card’s coverage, consult with your credit card provider to get a clear explanation of what is—and isn’t—covered.

 

• • Can you decline CDW in Iceland?
    At Hertz Iceland, CDW is typically included as part of our standard insurance package to protect you and the vehicle under Iceland’s challenging driving conditions. As a result, declining CDW is generally not an option and is not recommended given the potential risks.

 

• • Do I need proof of insurance to rent a car from Hertz?
    It depends. You will need to show proof of insurance if you choose to use your own personal insurance plan, such as one provided by your credit card. However, if you decide to purchase an insurance policy directly from Hertz, then you will not need to provide further details.

 

• • Can you add insurance to a rental car later?
    Insurance options should be selected at the time of rental. If you decide you need extra coverage after you’ve picked up your vehicle, please contact your local Hertz station immediately. However, to ensure seamless protection, we recommend choosing your preferred coverage when you initially book your car.

 

• • What rental car insurance should I get in Iceland?
    Given Iceland’s unique driving conditions, we suggest opting for comprehensive coverage. Our MAX Coverage package, which includes CDW, SCDW, and additional protections, is designed to minimize your out-of-pocket expenses in the event of damage, giving you peace of mind on your adventure.

 

• • Is there a liability waiver for rental cars in Iceland?
    Yes, our rental agreements include a liability waiver that covers third-party claims up to a specified limit. We recommend reviewing your rental contract carefully to understand the full extent of your coverage.

 

Rental Car Coverage in Iceland

Including Iceland car rental insurance should be a non-negotiable when booking a rental car in Iceland. 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. 

Rent a car in Iceland today and lock the rental rate!