With wadding you want it to block all burning particles from the ejection, so it has to fill the tube. With no motor in place you can look through the tube to see if light shows through — if so, it's not filled well.
How you wad it up makes a difference. Too many crinkles and creases leave gaps at the edges. A piece a bit bigger than the tube, laid flat over the tube end and gently poked in with a finger, can help with getting a good "seal". Then follow that with enough loose wads for protection.
Size of the wads matters, too. For small tubes, tear the sheets into smaller pieces. The right size should, when loosely crumpled, be slightly bigger than the tube. This way it fills the tube but still slides in (and out!) easily. Getting it right is pretty much a matter of experience.
As others have said, an extra sheet wrapped around the chute can provide an extra line of defense, just in case.
I think that an often overlooked factor is the folding of the chute. If everything can get blown out easily, hot gasses shouldn't be an issue: the body tube is full of cool air, and that gets pushed out first. If the cool air takes the chute with it, there's no risk from hot gases. If the chute gets stuck in the tube, though, it will be exposed to all the hot gases blowing past it.
Even with all of that, chute damage is bound to happen sometimes. LPR plastic chutes still work with minor damage and are very easy to replace if heavily damaged. They can be made from ordinary kitchen garbage bags; I use white bags and decorate them with markers. If you don't feel like making your own, they're not very expensive to buy.
Finally, I'll add that there are ways to get away from wadding. I've started using baffles, reusable teflon "pom-poms", and/or chute protectors (cloth sheets attached to the shock cord and wrapped around the chute) in most of my rockets. Not dealing with wadding really speeds up getting the rocket ready, and I like not leaving bits of wadding in the launch field.
