Yes. Anything off the main drag is going to have loose impediments, and a single nick/dent/ding is going to cost a LOT more than the insurance itself. Better safe than sorry, and I learned this the hard way during my trip to Iceland in Jan 2013.
I was recently in Iceland (early March) and also rented a 4WD, with the intention of going off the main roads, but nothing too adventurous. I also visited Svartifoss. If you are just going to be sticking to the main attractions, you will not get anything worse than a gravel road and maybe a shallow water crossing. I had a bit of ice, but that was because it was March. I ended up getting the gravel/ash/sand insurance, but in the end felt like it wasn’t really necessary.
Mind you it’s not much extra for peace of mind. The only time you will need it is if a volcano erupts nearby.
Credit:stackoverflow.com‘