These days, when everyone seems to be suing everyone else, insurance premiums continue to soar. Yet some insurance companies, fearing that the possibility of such lawsuits is too great, actually refuse to make certain types of insurance available to businesses. So in most cases you have insurance you can barely afford, and in some cases you can't even get insurance. What's a small business owner to do?

One solution is to explore alternatives to traditional insurance. In this discussion we'll examine a couple of insurance alternatives. As we do this, please remember that some insurance is required as a matter of law (auto liability for example) and that some types may be so important given your line of work (general liability insurance, malpractice insurance) that you don't belong in business if you can't afford it or can't get it at all.

Self insurance. With self insurance you simply set aside money — some businesses choose to set aside what they would be paying in premiums if they had purchased insurance — and use that money when an unfortunate event occurs. For a small business, the best place to think about self insuring is with property insurance rather than liability insurance because the risks are more manageable. For example, suppose you are paying for auto theft, fire, and collision (that is, the kind of insurance that replaces your car if it's in an accident, not someone else's) protection on your vehicle. If you dropped this coverage and put your savings in premiums into a bank, eventually you would save enough money to replace a vehicle from these funds.

Of course, one of the dangers with this approach is that you could have an unfortunate incident before you have enough money in your fund. You also cannot use this approach if you have financed the property in question and are required to maintain insurance by your lender.

But even if you can't totally self insure, you may be able to self insure a little by purchasing policies with higher deductibles. Suppose, for example that you maintain fire, theft, and collision protection on a vehicle, but agree to be responsible for the first $1,000 of any damage to the vehicle rather than the first $250 as is standard in many policies. Your additional risk is not that great — only $750 — and you may realize substantial savings on your auto premiums.

Reducing risk. You may be able to get by with less insurance if you have a solid risk reduction plan that you and your employees follow very carefully. For example you can get less burglary and theft protection if you have a conscious plan and take steps to assure the security of your workplace. You can also set up a safety program that will serve to significantly reduce your risks of accidents in the workplace.