When I bought a new car here in Nicaragua, it was financed through the bank so the bank demanded I have car insurance with full coverage. That costs about US $600 per year. I maintained full coverage up until last year when I opted to just take just liability as my car is now 8 years old. Liability cost $65 per year. It is not a million-dollar policy because nobody sues for a million dollars here in Nicaragua.
The terms of car insurance in Nicaragua is different than it is in the States. In case of an accident, of course, the police will be involved but they will not take it to court. The district attorney will not sue you, and the state will not sue you, either. What the state does, is to make sure that the person at fault pays damages to the person or the car that was hit. So for example, if I hit another car, that owner will have an idea of how much it will cost to repair his car and my insurance will pay for that repair. There is no whiplash and no massage-therapy involved at all.
If I kill someone in a car crash, the government will not send me to jail for 25 years for involuntary manslaughter. Instead, I will have to pay a restitution to the person’s family. If I kill someone in a traffic accident, I will go to jail immediately but I only go to jail long enough for the two private parties involved to come to an agreement as to what that person’s life was worth. So as long as the family of the person is in agreement with what I pay them using my insurance partly and maybe partly out of my pocket which can be around $5,000 to $10,000, the courts will not put me in jail for involuntary manslaughter. The court is more interested that both parties are taken care of as opposed to the state being compensated for the involuntary manslaughter. I am not trying to cover myself with a hundred million dollars worth of car insurance in case I kill someone in a traffic accident.
I think I have a $110,000 or $120,000 rider on my liability. If you need to pay for the hospital expenses of the person you hit, it will not cost $10,000 per day; it is only around $100 per day. A person will not consume $100,000 in medical expenses. Rather he will consume only about $1,000, and for that amount, you would rather pay out of pocket. Therefore, for me, having a liability rider on your car insurance is more cost efficient compared to paying $600 per month for full coverage of car insurance.