Why Do I Need Insurance When Renting a Car in Iceland?

Magnús Jóhann Björnsson
01 Aug. 2025

Renting a car is one of the best and most flexible ways to explore Iceland's breathtaking natural wonders. From towering waterfalls and otherworldly black sand beaches to remote geothermal valleys and rugged highland trails, having your own vehicle opens up a world of adventure. It allows you to set your own pace, pull over for spontaneous photo stops, and explore areas most tour buses won’t reach. But before you buckle up and head off into Iceland’s dramatic landscapes, there’s one essential question travelers often ask:

Do I really need car rental insurance in Iceland?

Short answer? Yes.

Long answer? Keep reading.

Why Iceland is unlike anywhere else to drive

Driving in Iceland is magical but it also comes with unique risks that most travelers don’t expect. The island's ever-changing landscape includes everything from slick coastal roads to unpaved mountain trails, each presenting its own set of challenges. The weather, terrain, and road conditions can change dramatically within a single day, or even within a single hour. One moment you're cruising under the midnight sun, and the next, you're navigating a sudden hailstorm or battling powerful crosswinds. This unpredictability means that even the most prepared driver can run into unexpected issues. That’s why having solid car rental insurance in Iceland isn’t just a checkbox to tick. It’s your peace of mind, your safety net, and your ticket to exploring confidently.

1. Wild weather

Iceland’s weather is famously unpredictable. Sudden snowstorms in spring, high winds in autumn, and icy roads in winter can catch even experienced drivers off guard. Wind gusts are powerful enough to damage car doors when opened incorrectly and yes, that’s a common claim.

2. Rugged roads

Not all roads are paved. Many of Iceland’s scenic areas are accessed via gravel roads or mountain tracks, especially in the Highlands. These routes increase the risk of stone chips to your windshield, gravel damage to the paint, and punctured tires.

3. Volcanic hazards

Iceland’s geology creates rare risks like sand and ash storms in the south that can scratch the car’s paint or glass beyond repair. This type of damage is not covered by many standard insurance policies.

4. Remote locations

If you break down in a remote area, help may be hours away. Having 24/7 roadside assistance can be a lifesaver.

For these reasons having a car rental insurance in Iceland is not just advisableit’s, it is essential.

What makes Blue Car Rental's insurance different?

At Blue Car Rental, we’ve simplified insurance with our Zero Worries policy. Offering everything you need before you start your trip with no upsells, no hidden costs, no stressful decisions at the counter. Our goal is to remove the uncertainty that often surrounds car rental insurance so that you can start your journey with confidence and clarity. We've designed this all-in-one coverage package with Iceland's unique driving environment in mind, ensuring that you're protected from the most common and costly risks. Whether it's unpredictable weather, volcanic hazards, or the occasional mishap on a gravel road, our insurance policy is built to handle it all. Instead of spending time trying to decipher fine print or compare confusing options, you can rest easy knowing that you're already covered by a company that knows Iceland and knows how to take care of its drivers.

Here's Blue Car Rental's insurances: 

All rental from Blue Car Rental have the following insurances included:

✅ CDW and SCDW – Collision Coverage

Covers damage to the vehicle from accidents, collisions, and most surface damage with a deductible. Our Super CDW (SCDW) lowers your liability further.

✅ Gravel Protection

Essential for driving anywhere outside Reykjavík. Protects against paint chips and windshield cracks caused by loose gravel, which is common on Icelandic roads.

✅ Third-Party Liability Waiver

Included in every rental, this covers injury or property damage to others if you’re at fault in an accident.

✅ Theft Protection

Covers vehicle theft. However it does not cover theft from items within the vehicle, only the car it self. 

Blue Car Rental also offers optional insurance upgrades to provide extra protection:

✅ Sand and Ash Protection

Unique to Iceland, this add-on called SAAP covers damage caused by volcanic ash or sandstorms. Repairs for this can cost thousands without protection.

✅ Liability waiver 

This insurance reduces all financial responsibility to zero in the event of damage. The liability waiver also includes SAAP automatically.

✅ Roadside Assistance Waiver

If your car breaks down or you get stuck, we cover the towing and assistance costs, day or night.

🔗 Learn more about our insurance coverage

Zero Deposit. Zero Surprises.

With Blue Car Rental, what you see is what you get. Unlike many international providers:

• No deposit is required when you pick up the car.
• All basic insurances are included in the base price.
• No hidden fees—we want your trip to start with a smile, not stress.

And if you ever need assistance, our local team is just a phone call away, offering real-time help from people who understand Icelandic conditions. Our support staff is based right here in Iceland and is fully familiar with the weather, road closures, and other location-specific concerns you might face during your trip. Whether you’ve hit unexpected snow in the highlands, need help locating a charging station for your EV, or just want advice on the best route to avoid bad weather, we’re here to help. Our team doesn’t just answer questions, our team actively guide you through challenges so you can continue your adventure with confidence and minimal disruption.

Want to Drive Iceland’s F-Roads?

Planning to explore the Highlands? Make sure to rent a 4x4 vehicle, and be aware that F-roads are only open in summer and require special driving care. These remote mountain roads, marked with an 'F', are unpaved and often involve steep inclines, river crossings, and uneven terrain that can be impassable without a proper four-wheel-drive. Even during the summer months when they’re open, conditions can change rapidly with weather, making it crucial to check real-time road status through sites like road.is. Additionally, driving on F-roads with a non-4x4 vehicle is illegal and can void your insurance coverage. Renting the right vehicle and being insured for these routes ensures you're both compliant and protected on your highland adventure.

🔗 Check our F-Road driving guide

Final Thoughts

Renting a car in Iceland gives you freedom, but insurance gives you peace of mind. With so many unpredictable variables at play ranging from rogue gravel on countryside roads to high winds that can unexpectedly wrench open car doors it’s crucial to feel protected before setting out. From erratic weather and rugged terrain to volcanic ash storms and narrow mountain passes, Iceland can be tough on vehicles and unfamiliar drivers alike. That’s exactly why Blue Car Rental’s Zero Worries package is built to remove the stress of “what if?” and let you focus entirely on your experience.

🔗 Here are our information about driving safely in Iceland.

With full coverage that includes everything from gravel protection to roadside assistance, combined with a transparent pricing structure and no required deposit, Blue ensures you’re protected from the start. Add to that our friendly local support team and real-time help if something does go wrong, and you’ve got more than just a rental, you’ve got a trusted partner on the road.

With full coverage, roadside support, and no surprises you can simply: land, grab your keys, and drive with complete confidence.