Sizing life insurance when your first baby arrives, line by line

Before the baby, a life insurance question was roughly "would my partner be okay?" After the baby, it becomes a list: who would pay for childcare, whether the house stays, how long the surviving parent could cut back at work, and what has to be paid off. A rule of thumb gives one number for all of that. A worksheet gives you the list, so you can see what the number is made of and change any piece when your life changes.

This post walks through a worksheet for a new-parent household with a worked example. Every figure is invented to keep the arithmetic visible. They are not prices, averages for your area or recommendations, and you should replace each one with your own. The same method is the foundation of the more detailed guides on the DIME method and insurance for new parents, and this post goes line by line so that you can repeat it.

The idea in one paragraph

You are estimating a one-time sum that, if invested sensibly and spent over time, would let the surviving parent keep the household running and the child on track. The sum has parts: the income the family would lose, extra costs the survivor would have to pay (mainly childcare), housing, debts and final expenses, and a cushion so the survivor can make decisions without rushing. You then subtract what the family already has: savings you would use, any life insurance, and group coverage through work. What is left is the gap to cover, and the result guides how much term coverage to apply for. This is a needs analysis, and you run it once for each parent, assuming that parent alone dies.

The example household

Say Noor, 32, and Evan, 34, have a newborn. They own a home with a $285,000 mortgage and a monthly principal-and-interest payment of $1,500 ($18,000 a year). They have a $12,000 car loan and $3,000 on credit cards. They have $35,000 in savings that they would be willing to use. Noor earns $85,000 a year and takes home $62,000 after taxes and her retirement contributions. Evan earns $52,000 and takes home $38,000. Each has group life insurance at work equal to one times salary. Neither has an individual policy.

Steps 1 to 3: income, years and childcare

Step 1: Find each parent's net contribution

Take-home pay overstates what the family loses, because the person who dies no longer spends money on themselves. Subtract the parent's own spending (lunches, commute, clothes, phone, hobbies, their share of food) from their take-home pay. What remains is their net contribution to the household.

• Noor: $62,000 take-home − $14,000 own spending = $48,000
• Evan: $38,000 take-home − $11,000 own spending = $27,000

Estimate own spending honestly. Overstating it makes the need look smaller than it is; understating makes the need look bigger.

Step 2: Decide how many years and how much to replace

Not every dollar needs replacing for eighteen years. The surviving parent will usually keep working, perhaps with some reduced hours or career disruption in the early years. A simple, transparent rule is to replace the full net contribution for an adjustment period and a reduced share afterward until the child is 18.

In the example, they choose full replacement for 5 years (through the child's preschool years) and 50% for the next 13 years, until the baby turns 18.

Avoid double counting the mortgage. The $48,000 net contribution helps pay all the household bills, including the $18,000 mortgage payment. If Noor's policy will pay off the mortgage (Step 4), the household no longer needs her income to cover that payment, so subtract it: $48,000 − $18,000 = $30,000 a year of income left to replace.

• Noor's income line: $30,000 × 5 = $150,000, plus $15,000 × 13 = $195,000, a total of $345,000.
• Evan's income line: his policy will not pay off the mortgage, because Noor's income could carry the payment, so his contribution stays at $27,000. $27,000 × 5 = $135,000, plus $13,500 × 13 = $175,500, a total of $310,500.

Step 3: Add childcare the survivor would have to buy

Today, one parent's time or flexibility may cover part of childcare. If one parent dies, the survivor needs to work and arrange care. Childcare is a real cost that the income lines do not capture. For scale, the national average price of child care was $13,184 a year in 2025, according to Child Care Aware of America, as cited in the new-parents guide. Prices vary a great deal by place and type of care, so use local figures.

The example assumes $14,000 a year of full-time care for the 5 years until kindergarten, and $6,000 a year of before-school, after-school and summer care for the 8 years from age 5 to 13:

• Preschool years: $14,000 × 5 = $70,000
• School years: $6,000 × 8 = $48,000
• Childcare line: $118,000 (the same for either parent, since either death leaves one parent to arrange care)

The estimate stops at age 13; a family that expects to need paid supervision in the teen years can extend it.

Steps 4 to 6: housing, debts and a cushion

Step 4: Add housing

The mortgage is usually the largest single number. The choice is between paying it off (so the surviving parent has no payment) and leaving it in place and counting on income to cover the payment. Paying it off gives the survivor the most flexibility, and the cost is a larger policy. In the example, Noor's policy includes the $285,000 balance. Evan's does not.

Use the current payoff balance, not the original loan amount. If you rent, the rent is already in the household budget, and you can leave this line out.

Step 5: Add debts and final expenses

List debts other than the mortgage, and add a figure for funeral and final costs. In the example: $12,000 car loan + $3,000 credit cards + $12,000 final expenses = $27,000. The guide to How much life insurance do I need? discusses which debts end with the borrower and which do not; federal student loans, for example, generally are discharged at death, while a co-signed private loan may not be.

Step 6: Add a transition fund

The survivor may need to take unpaid leave, move, or reduce hours. A cushion of several months of household spending lets them do that without selling the house or raiding retirement accounts. The example uses $20,000. Some households skip this line and some use six months of expenses.

Steps 7 and 8: totals and offsets

Step 7: Add the totals

For Noor: $345,000 + $118,000 + $285,000 + $27,000 + $20,000 = $795,000. For Evan: $310,500 + $118,000 + $0 + $27,000 + $20,000 = $475,500.

Step 8: Subtract what you already have

Subtract assets that would really be available: savings you are willing to spend, existing individual life insurance, and group life through work.

The savings are subtracted in both columns because each calculation assumes only one parent dies. Two warnings about the group coverage line. Employer coverage generally ends when the job does, with conversion or portability options that carry deadlines, and the is my life insurance through work enough? shows how to test that. If either parent might change jobs, consider running the sheet both with and without the group line: without it, Noor's gap is $760,000 and Evan's is $440,500. Rounded, the example suggests a term policy of roughly $700,000 for Noor and $400,000 for Evan.

Optional refinement: let the money earn something

The sheet so far assumes the benefit earns nothing, which overstates the need, because a lump sum invested conservatively earns something while it is spent down. A simple way to account for it is to find the present value of the income and childcare streams at an assumed return after inflation. Say they assume 3% a year, with each year's amount received at year-end:

• Noor's income stream has a present value of about $274,998 rather than $345,000.
• Evan's income stream has a present value of about $247,498 rather than $310,500.
• The childcare stream has a present value of about $100,447 rather than $118,000.

Rerun the totals. Noor: $274,998 + $100,447 + $285,000 + $27,000 + $20,000 = $707,445, less $35,000 and $85,000 gives about $587,000. Evan: $247,498 + $100,447 + $27,000 + $20,000 = $394,945, less $35,000 and $52,000 gives about $308,000. The truth for most families sits between the simple and refined figures, and a spreadsheet or the How much life insurance do I need? can run the present-value step with your own return assumption. The return you pick is a guess, so keep it modest.

What the sheet leaves out

• Social Security survivor benefits. A child of a deceased parent may qualify for monthly benefits, and a surviving spouse caring for a child may too. The amounts depend on the deceased parent's earnings record, so the example counts nothing. Ask the Social Security Administration for estimates, and see Social Security survivor benefits and the $255 death payment. If you count them, count them conservatively.
• College. The sheet has no education line. Add one if you want it covered; the post on adding a college fund without overbuying shows how.
• Inflation. A level death benefit buys less in 20 years. Choosing a slightly higher amount, or reviewing every few years, is the usual response.
• A parent who stays home. If one parent provides full-time care, the "income" line is replaced by the cost of the work done. See the post on pricing a stay-at-home parent's work.
• Disability. Losing the ability to work is more likely than dying during the working years for many households, and life insurance does not cover it.

When the number is bigger than the budget

A first baby usually arrives with a tighter budget, and a gap of $675,000 may feel out of reach. The usual responses keep the protection where it matters most:

1. Layer the coverage. Instead of one large policy, buy two level-term policies of different lengths. For Noor's example, a $400,000 policy for 30 years plus a $300,000 policy for 20 years totals $700,000 while the child is young. When the 20-year policy ends, the coverage steps down to $400,000, which is closer to what the family needs once the child is grown and the mortgage is lower. The guide to laddering term policies covers the idea.
2. Prioritize the lines. If you must trim, protect the housing and childcare lines first, since they are the hardest for a survivor to cut, and let the income lines absorb the compromise.
3. Insure both parents at a lower level each. Two moderate policies usually protect a household better than a large one on one parent and none on the other. The post on splitting coverage between two incomes gives criteria.
4. Revisit when income rises. Buying a smaller policy now does not prevent adding another later, though it will cost more at an older age and requires new underwriting, so do not postpone the first one for long.

None of these steps needs a prediction about prices. They need only the sheet, a budget figure and quotes at two or three amounts. Compare quotes on the same terms and ask about the conversion option, which lets you switch part of a term policy to permanent coverage without a new medical exam if your health changes. That feature can be worth more than a small difference in premium.

What moves the number most

Change one assumption at a time to see which ones matter, using Noor's sheet:

• Fewer years of full replacement. If they assume 3 years of full replacement instead of 5, the income line becomes $30,000 × 3 + $15,000 × 15 = $315,000, which is $30,000 lower.
• A larger share afterward. If the survivor could replace only a quarter of the lost income on their own, so the family needs 75% replaced after the adjustment period, the second block becomes $22,500 × 13 = $292,500 instead of $195,000, which is $97,500 higher.
• Pricier childcare. If local care costs 20% more than assumed, the childcare line becomes $118,000 × 1.2 = $141,600, which is $23,600 higher.

The assumption about how much income the survivor can replace on their own has the largest effect, and it is also the hardest to know. A survivor with a flexible employer, a portable career or family nearby can adapt differently from one in a rigid job with no relatives close. That is a reason to leave the cushion in rather than squeeze every line.

Common mistakes with the worksheet

• Using gross salary. The family loses take-home pay, not salary, and loses less than that once the parent's own spending stops.
• Counting the mortgage twice. Paying it off and also replacing income that was funding the payment overstates the need.
• Forgetting the parent who earns less. The lower earner's death can still leave a large gap once childcare and household work are priced.
• Treating group coverage as permanent. If it ends with the job, the gap reappears exactly when finances are tight.
• Stopping at one number. Keep a low, middle and high figure and decide with a premium budget in view, because an affordable policy that covers most of the need beats an unaffordable one.

From the number to a policy

A few practical points follow the arithmetic.

1. Term length. The child is a dependent for about 18 years, a mortgage may run longer, and the income lines run to 18. A level term insurance policy of 20 to 30 years is typical for a new baby, and the guide mentioned above discusses the choices.
2. Both parents. Run the sheet separately for each parent. The lower earner may still need real coverage, as Evan's $388,500 gap shows.
3. Beneficiaries. Do not name the baby directly. A minor cannot receive a large payout, and the guide on naming a minor child covers trusts and custodians.
4. Review. Rerun the sheet at each life event: a second child, a move, a raise, a career change, a payoff of debt.

Blanks to refill

Copy this into a note, then fill in the right-hand column for each parent.

Key takeaways

• Run the worksheet once for each parent, assuming that parent alone dies, and subtract the parent's own spending from take-home pay to find the real income loss.
• In the invented example, the gap came to $675,000 for the higher earner and $388,500 for the other parent, a range of about $587,000 and $308,000 once the money is assumed to earn a modest return.
• Remove the mortgage payment from the income line if the policy pays the mortgage off, or the same bill is counted twice.
• Childcare is a cost the income lines miss, and group coverage may disappear with the job, so test the result with and without it.
• Rerun the sheet after major life events, and name an adult, trust or custodian, not the baby, as beneficiary.