Final answer:
The personal automobile policy with a Mexican liability endorsement is designed to cover an American driving up to 25 miles into Mexico. Option 4 is correct.
Step-by-step explanation:
A personal automobile policy with a Mexican liability endorsement typically provides coverage expansion for your personal auto insurance when you drive your vehicle in Mexico. However, coverage is often limited. In the case of the options provided, such a policy would usually cover an American while driving up to 25 miles into Mexico.
It would not generally cover a driver anywhere in Mexico, nor would it cover a person living within 25 miles of the Mexican border unless they are driving in Mexico within the specified range. It also wouldn't cover a Mexican national while driving in the U.S., as that would fall under a different policy or insurance purview.
To illustrate why insurance policies like these are necessary, let us consider the following scenario: a group of 100 drivers could collectively incur $186,000 in damages over the course of a year from various accidents, without a way to identify who will have a minor or major accident.
Insurance allows these costs to be covered in a way that doesn’t financially overwhelm an individual. Similarly, a Mexican liability endorsement is designed to cover the unexpected costs that could arise while an American is driving in Mexico, ensuring they are protected up to the limits of the policy.
When it comes to insurance payouts, the policies generally cover expenses such as medical expenses when incurred, replacement or repair of a damaged or stolen car, or costs associated with damage caused to others or their property.