Mexican Insurance is a must.
Under Mexican law, motorists are required to have insurance, or "proof of financial responsibility", in the event of an accident, even if you did not cause it. As a foreigner traveling in Mexico, the only way of demonstrating this financial responsibility is to have sufficient real currency to cover damages, or an insurance policy
Some U.S. insurance policies cover you for damage and theft up to 75 miles into Mexico.
Check your U.S. policy. You might be able to get away with buying Mexican LIABILITY ONLY which usually covers Physical liability, Bodily injury, Medical expenses, Legal aid & bail bond & Road assistance.
If you're unsure and don't have time to check your U.S. policy, take out the Mexican FULL COVERAGE which usually adds cover for Property damage & Total theft/fire to the above.
If you are involved in an auto accident in Mexico, things will be more difficult and expensive for you, if you do not have at least the Mexican Liability Insurance. It's well worth the +- $8.50 per day premium.
Do you know what to do if you're flagged down by the POLICE for a “violation”? Read this now.this link.