Final answer:
Supplementary payments in liability insurance policies are made in addition to the limit of liability, covering extra costs like legal fees. They are a part of the policy's features, not an option left to the discretion of the insurer or insured, and are over and above the primary coverage limits.
Step-by-step explanation:
In liability insurance policies, supplementary payments are made in addition to the limit of liability. These payments cover costs such as court fees, attorney expenses, and certain other expenses that may be incurred in the defense or settlement of a claim. The answer to the student's question is B) In addition to the limit of liability. This is one of the key features of liability insurance, designed to provide extensive protection to the insured beyond the primary coverage limits.
The structure of liability policies typically involves various components such as premiums, deductibles, copayments, and coinsurance - all instrumental in defining the terms of coverage. Deductibles, copayments, and coinsurance are important mechanisms that ensure the policyholder bears a portion of the costs, thereby reducing moral hazard. Supplementary payments, on the other hand, are additional benefits that enhance the policy's value without diminishing the primary coverage limits.