Car insurance in Portugal

Some credit cards come with basic CDW and there are third party vendors such as Allianz that offer basic CDW.

With the rental company there’s basic CDW, an enhanced CDW with a lesser deductible, and full coverage, zero deductible. Then there are optional coverages (they vary by company) like tire protection and roadside assistance, personal injury protection, windshield protection, etc.

Liability insurance is compulsory and is included in the rental car price. Which is best for you depends on your comfort level and budget.

First off, this has very little to do with Portugal specifically. This dilemma exists more or less
wherever you rent a car.

I will add to what jaimeelsabio has written to note:

• you always get liability coverage when you rent a car in most European countries. This protects you from any issues caused to people/animals and property apart from you and the car.
• the CDW and associated coverages that protect you from damage to the car can either come from the rental car company directly, a 3rd party associated with the rental car company, or yourself, most likely through the credit card you use to rent the car. You can pay more for increased (less deductible) or more comprehensive (for instance, wind and sand damage is an additional item in Iceland since these are higher frequency issues) coverage.
• there is a "zero-deductible" option in many cases now that costs more but basically absolves you for having to pay anything out of pocket if the car is damaged in any way.

If you opt to use your credit card's coverage, you need to be aware of whether the coverage is
primary or secondary. If secondary, then your primary insurance (which could be your home
policy, but, many US auto insurance policies are not valid in Europe) kicks in first.

No matter what, you should examine the car closely when you get it, take pictures and video,
and review the list of pre-existing issues that comes with the car to make sure it includes
everything you see before you drive off the lot.