Imagine if you had a machine sitting in the corner of your lounge room that earned you $50,000 a year. Would you insure it to protect the income stream?

Rationally the answer is yes - provided the cost is not excessive.

Yet a new research study by Rice Walker Actuaries estimates that more than 5 million families are at real risk of financial hardship if either parent dies.

It seems we are better at insuring our machines than our lives - not insuring the car or the house and contents is seen as a real risk yet life insurance increasingly seems to be optional.

It is something of a paradox that as we have become more sophisticated about our investing we seem to have become blasé about the other side of the personal balance sheet - the risk of death.

The research by Rice Walker was commissioned by the Investment and Financial Services Association (IFSA) and what was particularly alarming was the growing level of underinsurance among families.

The analysis showed that around 4400 people with dependent children die each year yet about 60 per cent of those with dependent children have not got enough life insurance to support their loved ones for more than a year.

According to IFSA CEO Richard Gilbert those with the greatest insurance gap are parents under 30 years of age with a mortgage, households with an income of less than $50,000 and single parent families.

In the past decade household debt has risen significantly partly because interest rates have been at or near record lows and the residential housing boom has forced people to borrow more to buy a house.

At the same time superannuation has become a much more important asset for most people and it has brought with it a level of basic life cover. But therein may lie a perception issue. Buying your life cover through your super fund is a very cost-effective way of doing it. But the study by Rice Walker found that for people using their super fund to provide life cover it only represented 20% of what was required.

The actuaries estimate that for full-time workers in their thirties with young children they need around 10 times their taxable income to be adequately covered. That may seem high but you can quickly do the calculation yourself - imagine the income stops tomorrow. Work out what it costs to fund the household bills each year and then multiply it by the number of years until the children are no longer dependent on you.

That final number can be a scary figure.

A proper financial plan ought to have the prospect of untimely death covered in two key ways - there ought to be a current and valid will and the level of life insurance should be calculated as adequate to protect the lifestyle of your loved ones.

Back in the 1980s the life insurance industry was vilified for its rapacious sales techniques and rip-off commission and product structures. So it is ironic that while the industry has cleaned up its act - thanks to some proper government regulation and disclosure requirements - that we are now having to confront the problem of underinsurance for a significant part of the population.

Perhaps one of the true benefits of the new super fund choice legislation is that apart from giving people the option of switching funds it may prompt them to reassess their life cover and make sure the risk is covered.

That way if death does come up at a dinner table discussion there is at least some peace of mind about the financial future of the family.