But the level of debt that the average household in Australia is carrying in 2006 means that insurance is more important than ever. Take a moment to contemplate the impact on your household if your salary suddenly stopped coming in every month.

Consider the debt repayments that require servicing - how much do you need to find every month to cover the mortgage, car payments, childcare or school fees? Then you can add on the basics of life like food and drink.

The aim here is to pass the sleep test - if your debt level is keeping you awake at night you are failing the test.

There is plenty of research that suggests we are chronically underinsured but it is not easy to work out what level of insurance is appropriate for you.

Take the situation of a single income family where one person is earning the primary income and the other is studying and doing most of the childcare and household work. Clearly it is important to cover the primary income so that if serious illness or death strikes then the family would be able to pay the bills and be spared the stress of having to sell the house or disrupt their lives in other ways.

 But what if something happened to the other partner? The main income would still be coming in but life would have to change dramatically to cover all the extra childcare and support. So insurance that would pay for extra support for the number of years the children have left at school would be incredibly valuable.

Not many people enjoy discussing death or the prospect of serious illness like cancer. But it is real and for those of us in the baby boomer age group by now there has almost certainly been some level of personal experience.

The death of a good friend recently rammed home the importance of having well-thought through life insurance. And of course the time to do that is when you are healthy.

These are the sort of issues a good insurance agent is trained to work through. Now insurance salespeople do not enjoy the greatest of reputations thanks to high pressure sales techniques and high commission incentives. But the industry has been forced to clean up its act and these days the disclosure of fees and commissions is a lot better while modern insurance products are simpler and better designed to offset the sort of specific risks we have been discussing. A personal rule I use is to ask the insurance broker how much he is earning from the products being recommended - if they will not give me a specific answer in dollars the conversation ends right there.

Your superannuation also has a key role to play in your insurance cover. Most super schemes offer some level of life and disability cover with perhaps the option of income protection. Which is great but there are limitations you need to be understand.

For example what happens if you change jobs or perhaps take redundancy? Does your life cover stop after a period of time if you stop work? Perhaps you are changing jobs and are now over 50 years of age so what does that mean when you apply for insurance outside your super scheme? You may have to jump some higher medical hurdles to get the same level of cover.

With super fund choice this situation is improved because you can keep your existing fund and insurance cover - but be aware income protection may not be transferable even if you stay with the same fund but change employers.

Some level of insurance outside your super fund may also be worth considering particularly if some landmark birthdays are looming.

On the income protection front super funds have a time limit on the income replacement benefit period - typically the payments stop after two years. So to give yourself true peace of mind buying income protection outside super with a two-year waiting period is both cost effective and can give you maximum coverage to retirement age.

Income protection, as a good financial planner once described to me, should be viewed like a piece of critical equipment in a small business. If you ran a small business and the machine in the corner produced $100,000 a year in income you would insure it without thinking twice. So why not insure your own salary? Remember the premiums should also be tax deductible which at least eases some of the backpocket pain.

In the world of investment we spend a lot of time worrying about market and portfolio risk. But some of the risks are much closer to home - particularly when the debt side of the personal balance sheet is a significant number. A good financial plan should always identify those risks and recommend ways of covering them off.

Like most things in financial planning the key to peace of mind is understanding your situation - not pretending to be sound asleep.

Date:  11-8-06
Robin Bowerman
Smart Investing
Principal & Head of Retail, Vanguard Investments Australia
www.vanguard.com.au