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Iceland Road Trip - car rentals

I've seen a few thread but thought newer informations could not hurt. I have been to Iceland and all over Europe but never rented a car in Europe, so sorry for the silly questions perhaps.

I will be in Iceland roughly from November 23rd to December 30th. I have been there before but during Summer.
I am thinking of renting a car and doing part of the Road 1. If we plan on staying on main road, is a compact car with winters tire to us? Is a 4x4 needed if you stick to main road?

(Don't let my current city fool you; I am an experienced driver in the snow and so will my travel partner be. Lived in Quebec before).

Any car rentals companies that are more affordable?

Any tips on insurance? I am a bit confused about this...my agent said I am not covered and I should get insurance in Iceland with car rental company. That is fine. But also, said credit card may cover too. Any of you checked on this already? I read the never ending terms and it is so tricky. I am thinking of getting insurance through car rental company in Iceland.

Thanks!

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