An overwhelming majority of the roads in Iceland, outside of towns, are not paved. Even Route 1, Iceland’s longest and most driven road, isn’t fully paved.
The Gravel Protection usually covers damages from gravel roads to the body of the car, the headlights and the front windscreen.
We usually recommend taking this insurance if it's available, specially if your desired route takes you off Route 1, or you're going the ring road. Chips in the front windshield can cost up to $1.000, provided a new windshield is required.