Driving in Mexico: Am I covered by my car insurance?

Whether you belong to a family driving to Mexico to visit relatives for the holidays or you and your college buddies are simply driving deep into the country looking for adventure, it's important to know that U.S. auto insurance coverage stops at the border .

Car insurance requirements for U.S. drivers visiting Mexico can be difficult to understand if you're not familiar with them, says Jim Labelle, president of International Insurance Group (IIG), a U.S. company based in Flagstaff, Ariz., that sells auto insurance for Mexico-based insurers.

Making matters more complicated, says Labelle, are changes made in June to the regulations The changes come at a time when about 3 million people drive from the U.S. into the interior of Mexico each year, says Labelle.

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Anyone driving south of the border into Mexico should understand the car insurance implications. Visitors to Mexico who want to learn more about regulations pertaining to driving in Mexico can visit the U.S. Department of State website and the Mexican Customs website. But here are the basics:

1. Obtain Mexican insurance

U.S. auto insurance policies have no effect in Mexico, says Labelle. Car insurance from a company based in Mexico is not required for driving in border towns, but then you are driving at your own risk since your U.S. policy won't cover you should something happen.

When driving beyond 20 miles outside of border towns, the Mexican government requires drivers to have an insurance policy from a company based in Mexico for all vehicles, whether rental cars or privately owned, Labelle says. Companies such as Labelle's sell these policies to Americans.

The average policy of this type is for 10 days and costs $150 for a car valued at $25,000. Rates vary by the value of the car, among other factors.

Payments for car damages will be the same as they would be in the United States, Labelle says.

2. Get a permit

Mexico does not require import permits for cars driven near border towns. But permits are required if you plan to drive beyond about 20 into the interior.

To get the permit, drivers must submit evidence of citizenship, a title for the vehicle, a vehicle registration certificate and a driver's license.

They also must pay a $44 processing fee to either a Banjercito (Mexican Army Bank) branch at a Mexican Customs office at the port of entry, or at a Mexican consulate in the United States. Before regulations, changed in June, this fee ranged from $27 to $45, depending on where it was paid. Now, it's a standardized fee of $44.

Mexican law also requires paying a deposit of $200 to $400 at a Banjercito office. The amount of the deposit depends on the make, model and year of the vehicle. It can be paid with a credit card or cash, and is refunded at a Mexican Customs office before leaving the country. Prior to the June changes, you only needed to pay the deposit if you also paid the import permit processing fee in cash. Now, everyone who pays the processing fee must pay the deposit as well, says Alejandro Gonzalez Davila, chief executive officer at ABASeguros, a Mexico-based insurance company that does business with IIG.

The U.S. State Department reminds citizens that the permits can't be obtained at checkpoints inside Mexico, and should be obtained before entering the country or at the Banjercito branch at the port of entry.

3. Get permission

If you don't own your car outright and instead have a car loan--in other words, the bank owns it--you'll need to prove to your finance company that you have Mexican auto insurance by providing documentation before you drive into the country. The rules also apply if you have leased your vehicle.

You will also need to get a permission letter from the lien holder allowing the car to be taken outside of Mexico's commercial-free zones.