Choosing the Best Car Insurance For Your Trip in Iceland

Updated: Aug 29, 2023

Have you ever had a dream where you are enjoying your vacation in a foreign country? Out of a sudden, you get a flat tire. The dream has now turned into a nightmare. It gets even worse once you realize you have no car insurance and that the vision is actually real life. Well, if it’s any consolation, you are not the only one who has experienced this situation. Traveling abroad is undoubtedly one of the best experiences, especially in a country like Iceland. Here, you will find beauty in every corner. Mother nature is at its best; you will experience a variety of it. However, this can quickly turn into the worst experience ever if you don’t prepare for your trip correctly. Organizing and planning are vital, especially in Iceland, where a lot of driving is required due to the long distances. If you decide to rent a car or an RV, you will also need to choose car insurance. You need to make sure you get the best car insurance in Iceland. It will add comfort and tranquility to your adventure. That’s the one thing that you should not save on when renting a vehicle in Iceland.

Do I really need extra insurance?

Iceland's road conditions are incomparable to other countries. 50% of the roads you will encounter during your journey are gravel roads. These are unpaved roads, very narrow, bumpy with many loose stones, ash, and sand. In some places, you can even find some bigger rocks, right in the middle of the road. I believe there is no need to say what damages this can cause if hit at high speed.

Even the smallest pebbles can cause much damage. When these tiny stones get projected from the wheels of another vehicle, they can behave like little bullets. They usually hit the front windshield, creating a crack, or hit the chassis, creating a dent. These are the most common damages to cars in Iceland. Changing the windscreen can be quite expensive, as you can imagine. That is why it is so essential to get the right insurance in Iceland. It is very common to think that the car rental company is trying to sell extra protection that is not even necessary. That is not the case in Iceland. Actually, if the agent does not offer any other insurance, that’s definitely a red flag. When traveling on this island, good rental insurance is a must.

It will help you relax even more during your holidays and thoroughly enjoy them. You will be traveling worry-free without getting frightened when you hear a strange noise coming out of your car.

A camper van driving on snowy roads in Iceland worry free because it has the best car insurance

Third-Party Liability

There are different rental insurance options available for your vehicle in Iceland. It is essential to know what their letters stand for and, of course, the type of coverage they offer.

As per Icelandic law, all vehicles need to have third-party liability coverage. That comes included as a standard in your rented car, so you will not need to pay extra for it. Some of you might not even have a clue what that insurance is. To make it simple, you are legally responsible for the cost of any damage caused in an accident. A third party is any other person but you that includes the passengers of the vehicle, additional driver, pedestrians, etc. By adding the Third-party coverage, it means that the insurance company from your rental car company will take care of the cost of the damages covered by the insurance.

What you should be aware of is that your rented vehicle, involved in the accident, is not covered by this insurance. I think it is better to provide an example so it can be clear for anyone. Let’s say that while driving in Iceland, you accidentally hit a passing car. You end up crashing his and your side mirror. The third-party liability coverage does cover damages on the other vehicle, but not on yours. For the reparation of the side mirror of the car you were driving, you will need to pay the costs from your own pocket. In that situation, it would be great to have some extra insurance coverage, right?

Insurance in Iceland

Most of the rental cars in Iceland, have a necessary collision damage waiver included, CDW in short. This is actually a liability waiver and not insurance.. That means that in case you are involved in an accident, there is a certain amount you will have to pay to cover the repair costs. The standard amount is 350.000 ISK, which would be charged on the credit card you provided as a guarantee. This amount is called a „self-risk fee.” It is basically the cost you are liable for. You might think it is quite a lot of money, but believe me, some damages have a way higher repair cost. Having the CDW included, the car rental company agrees not to charge you more than this liability amount.

If you consider that amount to be too high and scary, extra insurance is a good option. You can opt for a Super Collision Damage Waiver. It will lower your self-risk! You will also see it written as SCDW, and it has the same coverage as the CDW. Why would I want to pay extra for the same insurance? You may say. Well, it is not the same insurance because it would lower the part you would be obliged to pay. This insurance can even lower the amount down to 50 000 ISK in some cases. It all depends on the vehicle model you rent, and the terms and conditions of your rental company.

What about the gravel damages?

Gravel Protection, also called GP, covers the gravel damages to the windshield, headlights, and the body of your rental car. As previously mentioned, almost half of the roads in Iceland are gravel roads, and those kinds of damage are the most common. Even a little dent on the body of the car will have to be fixed and will be charged from your card. The GP insurance will lower your self-risk fee in some cases, even to 0 ISK.

SAAP stands for Sand and Ash Protection. It covers all the damages caused by volcanic ash and sand, which are very common on the island. Sandstorms are very common in Iceland too. The risk of those damages is relatively low, much lower than the gravel damages for sure. The most expensive costs are usually related to the engine or the clutch.

Full packages of insurance - best car insurance in Iceland

Those who prefer to be covered as much as possible and get the best car insurance in Iceland should go for a full package.

When renting a vehicle in Iceland, you will probably find two options for full package insurance. One will come with all the possible insurance available as an extra. That includes the SCDW, GP, SAAP, and TP, which is theft protection at a much lower price. Each one of these insurance has its own self-risk fee, for which you will be liable in case of an accident. It is much cheaper compared to adding every coverage separately. This is the most significant advantage of this package.

The best rental companies in Iceland offer another version of this package, so you have the best possible insurance for your trip. It is usually called Platinum insurance. It is precisely the same package of insurance at a lowered price. However, it additionally reduces the self-risk fee to 0 ISK. That means that in case of an accident, you will not have to pay the damage from your own pocket.

You should be aware that there are some damages, which are not covered by any insurance in Iceland. Make sure you read the terms and conditions of every coverage carefully and ask your agent what exactly will not be covered. The most common damages which will not be included in your insurance are tires and the underside of the car. For that, we do recommend hiring extra coverage from a travel insurance company in your home country. In case of any incident, you would need to cover the cost of the reparation in front, and then claim it back from your insurer.

Credit Card Insurance

Nowadays, it is quite common that your credit card includes travel or car hire insurance. Usually, the condition on which you can make use of it is to have no extra insurance rented from your car hire company. As already mentioned above, most of the car rentals in Iceland offer the CDW included in the car price. In this case, if you would like to use your credit card insurance, you would need to waive all the insurances included in your rental. Check with your rental company if they offer such a possibility. Usually, they do, and you just need to sign a statement and it all can be done in the office directly upon the pickup.

Note, however, that in case of any damage during your trip, you would be obliged to pay the reparation costs beforehand. During the drop-off, a certain amount would be charged directly to your credit card. When the damage is assessed, the car rental company would contact you back to send you the final invoice. Then you will be able to claim the cost back from your credit card insurance. This is a usual process however it is always worth checking that first with your company in case there are other steps to be taken.