When renting a car, choosing insurance can be one of the biggest headaches. Here in Iceland, there are 2 mandatory insurances: Collision Damage Waiver and Third Party Liability. Sometimes, the Third Party Liability will be included under the 'Collision Damage Waiver'.
Third Party Liability covers any damage that you may cause to another person or their vehicle. Whilst Collision Damage Waiver covers the body of the car, in case of an accident.
Unfortunately, the Collision Damage Waiver usually doesn't cover the vehicle against water damage, damage to the undercarriage, tires, headlights, windscreen, wind damage to the doors or negligence and is void if you are found to be driving whilst intoxicated. However, this can vary depending on the agency. So, always remember to read the 'supplier's terms'.
Every agency offers additional insurances (unless they're really generous and already include them. Some do, so be sure to check!). However, if the agency you have selected has them as additional insurances then you may be struggling to choose which to select.
Similar to the choice of vehicle, this can depend on the time of year and also your route. However, there are 2 insurances that are absolute musts regardless of those. The first of those is the 'Super Collision Damage Waiver'.
Super Collision Damage Waiver and Gravel Protection
The Super Collision Damage Waiver is an advancement of the 'Collision Damage Waiver' and significantly lowers the self-risk amount (the sum you could pay up to if the vehicle is damaged).
Iceland has a high-risk for damages to vehicles due to road conditions and weather conditions. So, it is always best to anticipate the worst case scenario. This will help to prevent even higher expenses if any damage was to occur.
The second 'must' insurance is 'Gravel Protection'. Most of you may be under the impression that this is only required for those heading to F-roads. However, that is slightly inaccurate.
Most roads here in Iceland do contain a lot of loose gravel. Due to the bad weather and frequent use of studded tires, the roads tear up at a fast pace leaving loose gravel scattered everywhere. The tires can cause the gravel to shoot up and cause all sorts of damage. In most cases, it can be from the car in front of you.
Whilst the number of gravel damage incidents is fairly low compared to the number of tourists, it still does happen quite frequently and that's why I highly recommend the Gravel Protection. From my own unfortunate experiences, I have learned just how severe the damage from loose gravel can be.
You may have also heard about 'Sand and Ash Protection'. Now, this is more of a 'just in case' insurance. It is only really required from April to June since, from the winter, the grass has yet to grow enough to keep the sand in place.
I would recommend this insurance if you plan on heading down the south coast, as there are several vast sand fields you will be driving through.
F-roads and Water Damage
As previously mentioned, the vehicle usually isn't covered against water damage. So if you are planning on driving an F-road that contains a river, you will need to drive with care and assess the risk before driving through the river.
However, some agencies do offer additional insurance that covers damage caused to the vehicle from crossing rivers, such as this 'River Ford Crossing Protection' pictured below:
What Is Self-Risk?
The 'Self-Risk' can be a bit confusing for some people at first. This is because others may know it as the 'deductible' or 'excess'. It is the amount you could be liable to pay up-to if any damage occurs.
Each insurance has its own self-risk amount. Some can be high amounts, whilst others can be 0. As previously mentioned, you can purchase additional insurances such as the 'Super Collision Damage Waiver' which usually significantly lowers the self-risk amount.
It's worth noting that it may also be possible to purchase an 'Insurance Bundle' that has a 0 self-risk. Meaning, if damage occurs, you would not pay a penny. However, it still doesn't usually cover certain damages like water damage and undercarriage damage. Be sure to check the terms, or contact the supplier to make sure.