FINANCIALSECTION

**To Our Stockholders**
        Management prepared the following consolidated financial statements and all other financial informationincluded in this Annual Report and is responsible for its integrity, consistency and objectivity. In preparingthese statements, management necessarily made certain estimates and judgments and selected accounting principlesin conformity with generally accepted accounting principles in the United States appropriate in the circumstances.        The Company maintains a system of internal accounting controls and procedures to provide reasonableassurance, at an appropriate cost, that its assets are protected and that its financial transactions are properlyauthorized and recorded. Qualified personnel in the Company maintain and monitor these internal controls on anongoing basis.        The Audit Committee of the Board of Directors, composed solely of outside directors, meets as required, notless than annually, with the independent auditors, management and the internal auditors. Each has free andseparate access to the Committee. The Committee reviews audit procedures, scope and findings, and the adequacy ofthe Company's financial reporting.        The independent auditors, KPMG LLP, are elected by the Board of Directors to audit the financial statementsand render an opinion thereon.                                                               /s/Tracy W. Knapp  Tracy W. Knapp                                                               Senior Vice President, Finance **Contents:**      Management's Discussion ...........................        22    Selected Financial Data ...............................    24    Financial Statements ....................................   28    Notes to These Statements ...........................      32    Reports of Independent Auditors ..................43    Stockholder Information ..............................           44
**MANAGEMENT'S DISCUSSION**                           and analysis of financial condition and results of operationsOperatingResults
        Net income per share rose 11 percent in 2000 but then declined 39 percent in 2001 to $2.49 a share.Operating revenues, which exclude the volatility of realized investment gains and losses, were level last yearbut declined 2 percent this year. Operating profit margins averaged 9.5 percent over the last three years whilereturn on equity averaged7.31 percent during the same period.
        These results are best analyzed by reviewing each of the Company's operating segments. However,corporate-wide factors, including investment and operating expense performance, are discussed first.
        Net investment income declined 2 percent after remaining unchanged in 2000. The investment portfolio's bookvalue, net of borrowings, rose 2 percent this year as its net yield declined 22 basis points. The investments'book value declined 1 percent last year as its net yield rose slightly. Interest margins for the interestsensitive products were maintained this year but narrowed slightly last year. Ninety percent of this year's newinvestments were securities and 7 percent were mortgages. Last year mortgages comprised 15 percent of newinvestments. Net realized investment losses equaled $15.7 million in 2001 and $3.9 million in 2000, compared to a$2.9 million realized gain in 1999. The increased losses the past two years reflected the downturn in the economyand general volatility in the financial markets. The table to the right reflects the gross realized gains andlosses incurred the past three years.
        The securities portfolio, which represents 73.2 percent of the Company's investments, is broadly diversifiedin terms of the number of issues, industries and sectors represented. The percentage of investment gradesecurities in the portfolio increased slightly over the past two years to 92 percent currently. Delinquencies anddefaults represent 0.7 percent of the portfolio. Various measures have been taken to manage the portfolio'scredit and interest rate risks as discussed in the Market and Interest Rate Risk Analysis Section later in thisDiscussion. Kansas City Life reviews its securities' values on an ongoing basis. Several factors are analyzed inevaluating securities including an analysis of the company, its industry, valuation levels and subsequentdevelopments. Based upon these inputs, the Company wrote down the value of several securities whose impairment invalue was considered to be other than temporary.
        The mortgage portfolio, which represents 14.9 percent of total investments, is primarily comprised ofcommercial loans on industrial warehouses and office buildings. The loans are generally dispersed geographically,but no loans have been placed in the Northeast and one-third of the properties are located in California. None ofthese mortgages has been restructured nor has there been any delinquent loans or loans in foreclosure over thepast two years. The portfolio's estimated fair value exceeds its carrying value by$8.8 million.
        Real estate investments represent 3.3 percent of the investment portfolio. They consist principally ofoffice buildings, shopping center joint ventures and industrial warehouses that are both completed and in thedevelopment stage. These properties' carrying value is below their estimated fair value. Real estate salesgenerated $2.0 million in net gains this year and $4.3 million last year.200120001999                                       (Thousands)Gross gains resulting from:  Sales of securities         $  17,971    7,526    9,482  Securities called                 359    2,104      745  Mortgage reserve release            -    2,970    1,500  Sales of real estate and    joint ventures                2,559    4,395    3,928     Total gross gains           20,889   16,995   15,655Gross losses resulting from:  Sales of securities           (16,132) (13,545)  (8,904)  Write-downs of securities     (18,054)  (7,628)  (1,754)  Securities called              (2,548)    (403)  (2,157)  Sales of real estate and     joint ventures                (511)     (80)    (244)     Total gross losses         (37,245) (21,656) (13,059)Related deferred policy  acquisition costs                 608      790      264Net realized gains (losses)   $ (15,748)  (3,871)   2,860
        This year's operating expenses were significantly impacted by litigation against the Company. Over the pastseveral years, life insurers have faced extensive claims, including class action lawsuits, alleging impropermarketing practices. Sunset Life is the defendant in such a class action suit regarding its sales practices. TheCompany increased its litigation provision for a potential settlement in this suit by $16.3 million late in theyear based upon information then available. The practices in question occurred considerably before Sunset'soperations were merged into Kansas City Life during 1999.
        Home office operating expenses, excluding the above increase in legal reserves and related legal fees,declined 1 percent this year and 3 percent last year. This pattern continues the Company's long-standingcommitment to improving efficiency and controlling its operating costs.
        The Company's effective income tax rate declined slightly from 29.7 percent in 1999 to 28.4 percent for2000. The rate dropped considerably to 5.1 percent for the current year due to two occurrences. Pretax earningsdeclined for the year while tax credits arising from investments in affordable housing properties remainedunchanged. Additionally, $4.3 million in income tax allowances were released as IRS audits were completed, thuslowering taxes.
        The following describes the financial performance of each of the Company's four reportable operatingsegments: the Parent Company, divided between its individual and group insurance operations, and each of its lifeinsurance affiliates. Refer also to the Segment Information Note to the Consolidated Financial Statements.Kansas CityLife Insurance Company - Individual Insurance
        Interest sensitive products contribute approximately half of the Parent Company's individual directinsurance premiums, variable products generate approximately one-third of the total and traditional products 15percent. Universal life and annuity products provide 85 percent of total premiums. These products are marketedthrough a nationwide general agency distribution system. The average policy size has risen the past several yearsas variable products have become increasingly important to the mix of business. This segment, which includes thebanking and brokerage operations, accounts for approximately three-fourths of consolidated sales and net income,and 42 percent of consolidated insurance revenues.
        Variable products have increasingly dominated the segment's sales mix over the past few years. However, thelagging stock market made interest sensitive products more appealing to the consumer this year. Sales, in termsof new annualized premiums, declined 7 percent this year after rising 1 percent last year. Variable sales rose 11percent in 2000 but this growth largely was offset by declining interest sensitive sales. This year the reverseoccurred. Variable sales declined by a third as interest sensitive sales, principally annuities, nearly doubled.Variable sales constituted half of the segment's sales this year, while interest sensitive sales accounted for 40percent.
        Current year insurance revenues, including renewal receipts, were 3 percent below those of two years ago.Contract charges, associated with the interest sensitive and variable businesses, were level over this period.Two factors restrained growth. First, surrender charges declined, reflecting reduced surrender activity asdiscussed below. Second, policy charges on variable products were adversely impacted by declining accumulatedvalues due to the depressed stock market. Life premiums decreased 12 percent over the period, reflecting thedecline of traditional life business.
        Policy surrender rates on universal life business improved in 2001 after holding steady the previous twoyears. Surrender rates in the flexible annuity line deteriorated last year but improved considerably this year asmarket interest rates fell. Surrender rates rose in the variable line the past two years reflecting the difficultstock market. Changes in surrender rates have little bottom line impact in the year they occur, but they directlyaffect the Company's future earning power.
        Net income declined 29 percent this year after rising 3 percent a year ago. Net margins averaged 11.9percent in 1999 and 2000 before dropping to 9.3 percent this year. Much of the decline in earnings and marginsthis year reflects increased realized investment losses in the segment, which rose from $300,000 last year to$14.1 million this year. These losses were cushioned somewhat by the release of tax allowances as mentionedpreviously. Also, both 1999 and 2000 benefited by $4.0 million from unlocking, or changing, deferred acquisitioncost assumptions to reflect the emergence of actual profit margins, which were better than assumed. However,unlocking these assumptions benefited pretax earnings just $0.6 million this year.Kansas City LifeInsurance Company - Group Insurance
        Kansas City Life markets group life, dental and disability coverages as well as claim administrationservices. Dental coverage provides two-thirds of the segment's revenues. Group products are marketed through theCompany's sales force and appointed group agents. The group market is sizable and offers a significant avenue forgrowth. However, this market is extremely competitive, so achieving profitable sales growth is challenging.Kansas City Life has taken significant steps the past several years in an effort to increase the segment'sprofitability. First, the stop loss line was discontinued in late 1999. Second, the long-term disability line wasreinsured late that year as well. The Company continues to offer long-term disability coverage, but80 percent of the business is reinsured. Third, all existing life waiver of premium business was reinsured thisyear. The group segment provides one-eighth of consolidated sales and nearly one-fourth of the Company'sinsurance revenues.
        Group sales rose 28 percent this year largely due to the addition of a significant block of dental businessthat caused dental sales to rise 37 percent. The dental line accounted for 83 percent of group sales. Thesegment's sales declined 8 percent last year due to the discontinuation of the stop loss line as noted above.Excluding stop loss, group sales rose 4 percent in 2000, again largely due to dental.
        Group's insurance revenues rose 2 percent this year and 5 percent a year ago. However, excluding the stoploss and long-term disability lines of business, revenues rose 7 percent and 12 percent in 2001 and 2000,respectively, due largely to growth in the dental line.
        The segment's earnings trend mirrored its claims ratio experience. Group's overall claims ratio a year agowas its best in five years as virtually every product line's experience improved. Thus earnings rebounded from1999's loss to an $831,000 profit for 2000. However, the segment recorded a $692,000 loss this year as claimsratios deteriorated, principally in the dental line of business.Sunset LifeInsurance Company of America
        Sunset markets proprietary interest sensitive products, both universal life and flexible annuities, and terminsurance as well as Kansas City Life's variable products to individuals through a personal producing generalagency sales force. Sunset's operations were integrated into the corporate headquarters during 1999 in order toimprove the affiliate's efficiency. Sunset generates 4 percent of consolidated sales, as well as 9 percent ofcorporate insurance revenues.
        Sunset experienced double-digit sales declines the past two years. This decline was partially due totransitioning to new marketing management in late 1999 and the challenges this entails. Kansas City Life's ChiefMarketing Officer was added to Sunset's management team this year in order to lend his marketing expertise to theaffiliate. The new marketing initiative being implemented during the coming year at Kansas City Life will includeSunset as well.
        Insurance revenues declined over the past two years, reflecting the sales results noted above andsubstantial surrender rates in the flexible annuity line of business over the past several years. However,surrender activity in the line improved considerably this year as market interest rates fell and policyconservation efforts were heightened.
        Net income was level last year but fell to a $1.5 million net loss this year due to the increase in thelitigation allowance noted earlier and legal costs related to the lawsuit. However, Sunset recorded a sizablebenefit to earnings from the unlocking of deferred acquisition cost assumptions arising from the reinsurance of80 percent of its life insurance business. Excluding costs related to the lawsuit, and net of the one-timeunlocking benefit, net income rose 4 percent to $9.2 million.
**SELECTED FINANCIAL DATA**                                        (Thousands, except per share data)20012000199919981997Revenues:  Insurance                        $   251,140        253,619      255,595    259,559     244,695  Investment income, net               202,374        207,135      207,682    202,402     197,345  Other                                 13,923         16,024       13,956     14,671       9,998    Operating revenues                 467,437        476,778      477,233    476,632     452,038  Realized investment gains (losses)   (15,748)        (3,871)       2,860     11,426      14,505    Total revenues                 $   451,689        472,907      480,093    488,058     466,543Net income                         $    29,922         49,083       45,045     48,512      44,861Per common share:  Net income, basic and diluted    $      2.49           4.08         3.66       3.92        3.63  Cash dividends                   $      1.08           1.00          .96        .90         .88  Stockholders' equity             $     47.04          44.28        40.86      46.58       42.84Assets                             $ 3,764,589      3,646,261    3,621,284  3,577,414   3,439,452Net return on invested assets             7.34  %        7.56         7.52       7.34        7.56Life insurance in force            $26,644,910     26,938,904   26,747,316 26,641,664  26,595,709
The above is not covered by the Reports of Independent Auditors.Per share data has been adjusted for a two-for-one stock split in June 1999.Old AmericanInsurance Company
        Old American sells final expense policies to the senior market through a Planned Production Agencydistribution channel. This marketing concept offers exclusive sales territories, sales lead financing andproprietary products to the sales agents and has generated a core of dedicated agents. However, Old Americanfaces two principal challenges: to grow this agency force and to compete effectively in an intensely competitivemarketplace. The Company strengthened its underwriting efforts four years ago. This improved earnings,but also dampened sales growth over this period. Old American generates 7 percent of consolidated sales andone-fourth of consolidated insurance revenues and net income.
        Sales declined slightly over the past two years and total insurance revenues declined 2 percent over thisperiod. While the recruitment and development of new agencies continues to be a significant challenge, this yearthe recruitment of new agents reached its highest level in five years.
        Old American's net income rose by more than half over the past two years. Improved mortality experience,increased operating efficiency and realized investment gains contributed to the rising earnings.Market andInterest Rate Risk Analysis
        Kansas City Life holds a diversified portfolio of investments that includes cash, bonds, preferred stocks,mortgage-backed securities, commercial mortgages and real estate. Each of these investments is subject, invarying degree, to market risks that can affect their ability to earn a competitive return and the return affectstheir fair value. The majority of these assets are debt instruments of corporations or U.S. Government SponsoredEnterprises (GSE) and are considered fixed income investments. Thus the primary market risks affecting theCompany are interest rate and credit risks.
        Coupon and dividend income represents the greatest portion of an investment's total return for most fixedincome instruments. As interest rates fall, the coupon and dividend streams of older, higher-paying investmentsbecome relatively more valuable than newer, lower-yielding opportunities. Therefore the market value of theolder, high-paying investments increases. The opposite effect occurs when interest rates rise. The fair marketprice of such investments is inversely related to market interest rates.
        Interest rates fell during 2001, causing Kansas City Life's investment portfolio to increase in value. Earlythis year the Federal Reserve Open Market Committee began lowering short-term interest rates to stimulate theeconomy, which in turn helped the valuations of short-term bonds. However, long-term interest rates (10 years andbeyond) remained high, finishing the year at levels almost identical to those prevailing at the beginning of theyear. Last year end, the book value of the securities exceeded its market value by $71.0 million. With thedecline in short-term rates, book value exceeded market value by $38.4 million at year's end.
        Due to the complex nature of interest rate movements and their uneven effects on the value of fixed incomeinvestments, the Company uses sophisticated computer programs to help predict changes in the value of theportfolio. Assuming that changes occur equally over the entire term structure of interest rates or yield curve,it is estimated that a 100 basis point increase in rates would translate to a $90.7 million loss of market valuefor the $2.2 billion securities portfolio. Conversely, a 100 basis point rate decrease translates to a $88.1million increase in market value. This relationship is generally termed duration, a mathematical measurement ofthe sensitivity of investment cash flow to small changes in market rates. Convexity, a term that applies to theskew in the securities' value changes for similar changes, both positive and negative, in interest rates,decreased slightly from last year and is now relatively flat. This is due to an increased concentration inmortgage-backed securities.
        Market changes rarely follow a linear pattern in one direction for any length of time. Within anydiversified portfolio, an investor will likely find embedded options, both puts and calls, that change thestructure of the cash flow stream. Mortgage-backed securities are particularly sensitive to interest ratechanges. As long-term interest rates fall, homeowners become more likely to refinance their mortgage or move upto a larger home, causing a prepayment of the outstanding mortgage principal, which must then be reinvested at alower rate. Should interest rates rise suddenly, prepayments expected by investors may cease, extending thematurity of a mortgage pool by many years. This represents a further interest rate risk to investors.
        The table on the next page details the nature of expected cash flows from the securities portfolio,including the cash flows from mortgage-backed securities pools and callable corporate bonds, and commercialmortgages. Calls and prepayments represent the principal amount expected to return to the Company if all optionsembedded in the portfolio are economically exercised, based on spot interest rates prevailing on December 31,2001. Total principal equals invested cash scheduled to return in each year, including maturities, calls, sinkingfunds and prepayments.
        The majority of the Company's investments are exposed to varying degrees of credit risk--the risk that thevalue of the investment may decline due to deterioration in the financial strength of the issuer, and that thetimely payment of principal or interest might not occur.
        Over the past three years, credit defaults in the marketplace have increased significantly. The increase inthe default rate may be attributed to several factors, including the economic slowdown experienced by the U.S.economy the past two years, the increased use of leverage by corporate issuers, fraud, and adverse legaljudgments against corporations, among others. A default by a rated issuer usually involves some loss of principalto the investor. Such loss can be mitigated by timely sales of affected securities or by active involvement in arestructuring process, which preserves the value of the underlying entity. However, there can be no assurancethat the efforts of an investor will lead to favorable outcomes in a bankruptcy or restructuring.
        The Company mitigates this risk by diversifying the investment portfolio across a broad range of issuers,investment sectors and security types, by limiting the amount that it invests in any particular entity and byinvesting substantial amounts of the portfolio in instruments carrying a security lien against tangible assetcollateral. Pledged collateral that retains its value increases bondholder recovery amounts in the case ofbankruptcy or restructuring. With the exception of certain GSE's, there is no exposure to any single issuer in anamount greater than 0.7 percent of assets on a book value basis. Further, no single issuer represents more than0.5 percent of assets unless that issuer collateralizes its securities with liens against tangible property.
        Kansas City Life currently owns $117.0 million of foreign bonds. Since these are denominated in U.S.dollars, there is no direct exposure to foreign currency risk. There is an indirect exposure to exchange marketsto the extent that the issuers of these securities can obtain dollars to fully fund their obligations. There isno material foreign exposure in the Company's mortgage or real estate holdings.
        As interest rates rise, policyholders become more likely to surrender policies or to borrow against cashvalues, often to meet sudden needs in an inflationary environment or to invest in higher yielding opportunitieselsewhere. This risk of disintermediation may force the Company to liquidate parts of its portfolio at a timewhen the fair market value of fixed income investments is falling. If interest rates fall, the Company may alsobe forced to invest new cash receipts at levels below the minimum guaranteed rates payable to policyholders,eroding profit margins. Due to its strong cash flow, the Company can usually adapt to small sudden changes ininterest rates, or even large changes that occur over longer periods of time. Extreme sudden market volatility,however, poses the greatest risk and a number of steps are taken to quantify and mitigate this risk.
**EXPECTED CASH FLOWS**                                                     (Millions)                                                                                        There-  Total     Fair                                           20022003200420052006afterPrincipalValueCorporate bonds currently callable       $    2       6        1        8          9       45      71     70  Average interest rate                   12.53 % 10.54     9.77     7.61      11.84     6.98    8.06Mortgage-backed securities and CMO's        166      43       37       29         22      133     430    422  Average interest rate                    6.99 %  7.04     6.93     6.89       6.83     6.83    6.92All other securities                        140     157       70      122         64      996   1 549  1 521  Average interest rate                    5.12 %  7.07     8.05     8.25       7.51     7.32    7.30            Securities                             308     206      108      159         95    1 174   2 050  2 013Average interest rate                      6.18 %  7.17     7.69     7.97       7.78     7.26    7.25Commercial mortgages                         77      32       23       28         32      251     443    435  Average interest rate                    8.42 %  8.08     7.70     7.84       7.90     7.84    7.87            Total                                $ 385     238      131      187        127    1 425   2 493  2 448       Average interest rate               6.63 %  7.29     7.69     7.95       7.81     7.39    7.36       
The table shows expected cash flows from principal repayments of bonds in the form of maturities, calls, sinkingfundsand prepayments as well as principal repayments of commercial mortgages.
        Although the Company hasrarely used derivatives due to a number of factors, including pricing,liquidity, and the net value to the Company’s business position, corporatepolicy would permit the purchase or sale of certain derivatives contracts,mainly in the form of caps, floors, swaps or options. Such contracts would workmainly as volatility insurance, to provide value in periods of extreme interestrate movement. Thus their value is largely a function of the likelihood of arapid, dramatic market change. Kansas City Life conducts numerousprobability-based computer simulations to test the effects on profitability ofthese market shifts, and to determine the value of derivatives hedging. As apolicy, the Company does not trade such instruments for speculative purposes,and only enters into derivatives contracts to hedge a specific, identifiablerisk for a specific period of time under specific conditions. 
Changes inAccounting Standards
        FAS No. 141, "Business Combinations," and FAS No. 142, "Goodwill and Other Intangible Assets," will beadopted by the Company on January 1, 2002, and are not anticipated to have a significant impact on Kansas CityLife's reported results. These Standards impact companies' accounting for business combinations and for thepurchased goodwill and other intangible assets that arise from those combinations or are acquired otherwise. Thepurchase method of accounting is mandated and positive goodwill is no longer amortized annually. Instead it istested for impairment annually and written off only to the extent it is determined to be impaired. Unallocatednegative goodwill is to be recognized as an extraordinary gain.CriticalAccounting Policies
        The calculation of life insurance policy reserves is dependent upon estimates of future mortalityexperience. These estimates require judgments based upon the Company's past experience. If the actual mortalityexperience in a period varies from that assumed, the cushioning impact of the reserves released in relation tothe death claims incurred will vary and may negatively impact the period's earnings. Much of the volatility inthe Company's earnings over time is normally due to changes in mortality experience.
        Policy acquisition costs, principally agent commissions and other selling, selection and issue costs, arecapitalized as incurred and amortized against earnings over the expected future profits of the business. Profitexpectations are based upon estimates of future interest spreads, mortality margins, operating expenses andsurrender experience. These estimates involve judgment and are compared to actual experience on an ongoing basis.If it is determined that the assumptions should be revised as to the profit expectations for the business, theassumptions are unlocked, or changed, with the impact of the change flowing through the current period's earnings.
        The review process to determine other than temporary declines in the value of the investment portfolio hasbeen discussed previously.Liquidity andCapital Resources
        Kansas City Life generated strong cash flows over the past three years. Funds provided by operationsaveraged $54.8 million annually and the Company funded $2.4 billion in new investments over the same period.Assets and liabilities' maturities and yields are matched and cash flow testing is performed to ensure funds willbe available as needed to meet future policyholder obligations.
        The above excludes net proceeds from the variable line of business since these proceeds are largelypartitioned into separate accounts and are not held in the Company's general investments. These separate accountsequaled $305.3 million this year end.
        Funds were borrowed over the three years but these were primarily in support of investment strategies. TheCompany maintains a number of short-term credit lines with the capacity to borrow additional capital forliquidity purposes. The Company also has agreements with banks to borrow additional funds under reverserepurchase agreements. Kansas City Life has additional borrowing capacity through its membership affiliation withthe Federal Home Loan Bank. At year's end, outstanding balances under this agreement totaled$95.0 million, an amount that funds a portfolio of mortgage-backed securities. The Company currently has thecapacity to add $84.7 million in borrowings with no additional capital commitment.
        Kansas City Life's statutory equity exceeds the minimum capital deemed necessary to support its insurancebusiness, as determined by the risk based capital calculations and guidelines established by the NationalAssociation of Insurance Commissioners. The maximum stockholder dividends that can be paid in 2002 without priorapproval of the Missouri Director of Insurance is $42.1 million.
        Stockholder equity per share, or book value, equaled $47.04 this year end, a 6 percent increase for the year.Book value, excluding the volatile effects of unrealized investment gains and losses, equaled $49.04 a share, 2percent above a year ago. This January the Board of Directors extended the stock repurchase program through 2002to potentially purchase up to one million of the Company's shares on the open market. This would represent 8percent of the shares outstanding. No shares were purchased under this program this year.
**CONSOLIDATED INCOME STATEMENT**                           (Thousands, except per share data and parenthetical comments)200120001999**REVENUES**Insurance revenues:  Premiums:    Life insurance                            $     97,959      99,195     104,086    Accident and health                             45,811      44,641      42,636  Contract charges                                 107,370     109,783     108,873Investment revenues:  Investment income, net                           202,374     207,135     207,682  Realized investment gains (losses), net          (15,748)     (3,871)      2,860Other                                               13,923      16,024      13,956      TOTAL REVENUES                               451,689     472,907     480,093**BENEFITS AND EXPENSES**Policyholder benefits                              275 645     276 840     281 172Amortization of deferred acquisition costs          27,765      26 828      31 261Insurance operating expenses                       116,739     100,735     103,597TOTAL BENEFITS AND EXPENSES                        420,149     404,403     416,030Income before Federal income taxes                  31,540      68,504      64,063Federal income taxes:  Current                                            9,116      15,633      21,172  Deferred                                          (7,498)      3,788      (2,154)                                                     1,618      19,421      19,018NET INCOME                                    $     29,922      49,083      45,045Basic and diluted earnings per share:  Net income                                         $2.49        4.08        3.66
See accompanying Notes to Consolidated Financial Statements.
**CONSOLIDATED BALANCE SHEET**20012000**ASSETS**Investments:  Fixed maturities:    Available for sale, at fair value (amortized cost $2,098,175,000;     $1,998,319,000 - 2000)                                                $    2,062,193    1,934,157    Held to maturity, at amortized cost (fair value $80,463,000)                        -       80,572  Equity securities available for sale, at fair value     (cost $70,159,000; $100,866,000 - 2000)                                       67,759       94,269  Mortgage loans, net                                                             433,095      396,731  Real estate, net                                                                 61,777       44,443  Real estate joint ventures                                                       33,320       34,185  Policy loans                                                                    112,995      116,024  Short-term investments                                                          127,984       54,171  Other investments                                                                10,999            -    TOTAL INVESTMENTS                                                           2,910,122    2,754,552Cash                                                                                4,365       13,391Accrued investment income                                                          37,457       41,028Receivables, net                                                                    4,532        3,688Property and equipment, net                                                        19,013       20,701Deferred acquisition costs                                                        243,606      244,960Value of purchased insurance in force                                              80,361       87,833Reinsurance recoverables                                                          141,141      135,378Deferred income taxes                                                               7,591        8,870Other assets                                                                       11,118       10,712Separate account assets                                                           305,283      325,148$    3,764,589    3,646,261**LIABILITIES AND STOCKHOLDERS' EQUITY**Future policy benefits:  Life insurance                                                           $      772,224      775,381  Accident and health                                                              43,725       45,905Accumulated contract values                                                     1,640,081    1,619,887Policy and contract claims                                                         34,969       34,083Other policyholders' funds:  Dividend and coupon accumulations                                                61,579       61,354  Other                                                                            68,309       88,195Notes payable                                                                      96,779       41,520Current income taxes payable                                                       11,652        6,383Other liabilities                                                                 164,304      116,151Separate account liabilities                                                      305,283      325,148     TOTAL LIABILITIES                                                          3,198,905    3,114,007Stockholders' equity:  Common stock, par value $1.25 per share    Authorized 36,000,000 shares, issued 18,496,680 shares                         23,121       23,121  Paid in capital                                                                  21,744       20,109  Retained earnings                                                               668,255      651,324  Accumulated other comprehensive loss, net of tax                                (38,806)     (55,280)  Less treasury stock, at cost (6,470,052 shares; 6,475,203 shares - 2000)       (108,630)    (107,020)     TOTAL STOCKHOLDERS' EQUITY                                                   565,684      532,254$    3,764,589    3,646,261
See accompanying Notes to Consolidated Financial Statements.
**CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY**200120001999**COMMON STOCK,** beginning and end of year                 $       23,121    23,121     23,121**PAID IN CAPITAL:**  Beginning of year                                             20,109    18,498     17,633  Excess of proceeds over cost of treasury stock sold            1,635     1 611        865  End of year                                                   21,744    20,109     18,498**RETAINED EARNINGS:**  Beginning of year                                            651,324   614,278    581,074  Net income                                                    29,922    49,083     45,045  Other comprehensive income (loss):    Unrealized gains (losses) on securities                     19,679     9,581   (104,921)    Decrease (increase) in unfunded pension liability           (3,205)   (5 766)       360  Comprehensive income (loss)                                   46,396    52,898    (59,516)  Transfer other comprehensive (income) loss to    accumulated other comprehensive income                     (16,474)   (3,815)   104,561  Stockholder dividends of $1.08 per share    ($1.00 - 2000 and $.96 - 1999)                             (12,991)  (12,037)   (11,841)  End of year                                                  668,255   651,324    614,278**ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS):**  Beginning of year                                            (55,280)  (59,095)    45,466  Other comprehensive income (loss)                             16,474     3,815   (104,561)  End of year                                                  (38,806)  (55,280)   (59,095)**TREASURY STOCK,** at cost:  Beginning of year                                           (107,020) (102,997)   (89,361)  Cost of 71,054 shares acquired    (174,550 shares - 2000 and 349,087 shares - 1999)           (2,692)   (5,600)   (14,094)  Cost of 76,205 shares sold    (111,085 shares - 2000 and 32,243 shares - 1999)             1,082     1 577        458  End of year                                                 (108,630) (107,020)  (102,997)  TOTAL STOCKHOLDERS' EQUITY                            $      565,684   532,254    493,805
See accompanying Notes to Consolidated Financial Statements.
**CONSOLIDATED STATEMENT OF CASH FLOWS**200120001999**OPERATING ACTIVITIES**Net income                                           $       29,922          49,083            45,045Adjustments to reconcile net income to  net cash from operating activities:    Amortization of investment premium, net                     601           4,867             2,061    Depreciation                                              5,181           6,093             5,265    Policy acquisition costs capitalized                    (27,916)        (35,775)          (39,553)    Amortization of deferred acquisition costs               27,765          26,828            31,261    Amortization of the value of purchased     insurance in force                                       7,472           7,803             8,695    Realized investment (gains) losses                       15,748           3,871            (2,860)    Changes in assets and liabilities:     Future policy benefits                                  (1,337)         (8,270)           12,375     Accumulated contract values                              1,986          (8,246)          (10,182)     Other policy liabilities                                (4,784)            351            (1,983)     Income taxes payable and deferred                         (950)          8,147           (14,748)    Other, net                                               (4,236)         11,668            13,099    NET CASH PROVIDED                                        49,452          66,420            48,475**INVESTING ACTIVITIES**Purchases of investments:  Fixed maturities available for sale                      (884,654)       (415,189)         (654,943)  Fixed maturities held to maturity                               -          (3,304)           (3,354)  Equity securities available for sale                       (5,116)        (22,134)          (43,130)Sale of available for sale securities                       678,423         393,934           428,943Maturities and principal paydowns  of security investments:    Fixed maturities available for sale                     187,673         115,557           173,990    Fixed maturities held to maturity                             -          24,539            10,913    Equity securities available for sale                     16,088          19,251               486Purchases of other investments                             (187,270)       (138,947)          (36,300)Sales, maturities and principal  paydowns of other investments                              51,215          53,990            59,655Disposition of group insurance blocks, net cash paid         (4,000)              -            (5,162)    NET CASH PROVIDED (USED)                               (147,641)         27,697           (68,902)**FINANCING ACTIVITIES**Proceeds from borrowings                                    102,589          58,445            95,850Repayment of borrowings                                     (47,330)        (86,425)          (26,350)Policyholder contract deposits                              148,930         137,901           148,993Withdrawals of policyholder contract deposits              (130,722)       (198,474)         (181,367)Change in other deposits                                     28,662             (79)           13,505Cash dividends to stockholders                              (12,991)        (12,037)          (11,841)Disposition (acquisition) of treasury stock, net                 25          (2,412)          (12,771)    NET CASH PROVIDED (USED)                                 89,163        (103,081)           26,019Increase (decrease) in cash                                  (9,026)         (8,964)            5,592Cash at beginning of year                                    13,391          22,355            16,763         CASH AT END OF YEAR                         $        4,365          13,391            22,355
See accompanying Notes to Consolidated Financial Statements.
**NOTES TO CONSOLIDATED FINANCIAL STATEMENTS**(Amounts in tables are generally stated in thousands, except per share data)
**SIGNIFICANT ACCOUNTING POLICIES**
**Organization**Kansas City Life Insurance Company is a Missouri domiciled stock life insurance company which, with itsaffiliates, is licensed to sell insurance products in49 states and the District of Columbia. The Company offers a diversified portfolio of individual insurance,annuity and group products distributed primarily through numerous general agencies. The Company's new businessactivities have been concentrated in interest sensitive and variable products in recent years.
**Basis of Presentation**The accompanying consolidated financial statements have been prepared on the basis of accounting principlesgenerally accepted in the United States (GAAP) and include the accounts of Kansas City Life Insurance Company andits subsidiaries, principally Sunset Life Insurance Company of America (Sunset Life) and Old American InsuranceCompany (Old American). Significant intercompany transactions have been eliminated in consolidation. Certainreclassifications have been made to prior year results to conform with the current year's presentation. GAAPrequires management to make certain estimates and assumptions which affect amounts reported in the financialstatements and accompanying notes. Actual results could differ from these estimates.
**Recognition of Revenues**Traditional life insurance products include whole life insurance, term life insurance and certain annuities.Premiums for these products are recognized as revenues when due. Accident and health insurance premiums arerecognized as revenues over the terms of the policies. Revenues for universal life and flexible annuity productsare amounts assessed against contract values for cost of insurance, policy administration and surrenders, as wellas amortization of deferred front-end contract charges.
**Future Policy Benefits andAccumulated Contract Values**Traditional life insurance reserves have been computed by a net level premium method based upon estimates at thetime of issue for investment yields, mortality and withdrawals. These estimates include provisions for experienceless favorable than actually expected. Investment yield assumptions for new issues are graded down and range from7.25 percent to 5.25 percent. Mortality assumptions are based on Company experience expressed as a percentage ofstandard mortality tables. The 1975-1980 Select and Ultimate Basic Table is used for new business.
Accident and health reserves represent estimates of payments to be made on reported insurance claims as well asclaims incurred but not yet reported. These estimates are based upon past claims experience, claim trends andindustry experience.
The liability for unpaid accident and health claims is included with "policy and contract claims" on theConsolidated Balance Sheet. Claim adjustment expenditures are expensed as incurred and were not material in anyyear presented. Activity was as follows.200120001999Gross liability at  beginning of year                $ 9,983    10,744    11,726Less reinsurance recoverable         4,678     5,523     5,486Net liability at beginning of year   5,305     5,221     6,240Incurred benefits related to:  Current year                      32,528    30,232    29,330  Prior years                          307      (241)     (850)Total incurred benefits             32,835    29,991    28,480Paid benefits related to:  Current year                      26,315    24,497    23,617  Prior years                        5,822     5,410     5,882Total paid benefits                 32,137    29,907    29,499Net liability at end of year         6,003     5,305     5,221Plus reinsurance recoverable         2,772     4,678     5,523Gross liability at end of year  $    8,775     9,983    10,744
Liabilities for universal lifeand flexible annuity products represent accumulated contract values, withoutreduction for potential surrender charges, and deferred front-end contractcharges which are amortized over the term of the policies. Benefits and claimsare charged to expense in the period incurred net of related accumulatedcontract values. Interest on accumulated contract values is credited tocontracts as earned. Crediting rates for universal life insurance and flexibleannuity products ranged from 3.00 percent to 7.25 percent (4.00 percent to 6.75percent - 2000 and 3.85 percent to 6.50 percent - 1999). 

Withdrawal assumptions for all products are based on corporate experience.

**PolicyAcquisition Costs**The costs of acquiring newbusiness, principally commissions, certain policy issue and underwritingexpenses and certain variable agency expenses, are deferred. For traditionallife products, deferred acquisition costs are amortized in proportion to premiumrevenues over the premium-paying period of related policies, using assumptionsconsistent with those used in computing benefit reserves. Acquisition costs forinterest sensitive and variable products are amortized over a period notexceeding 30 years in proportion to estimated gross profits arising frominterest spreads and charges for mortality, expenses and surrenders that areexpected to be realized over the term of the contracts. The amortization isadjusted retrospectively when estimates of current or future gross profits to berealized from a block of business are revised. This asset is also adjusted forthe impact on estimated gross profits of net unrealized gains and losses onsecurities. 
**Value ofPurchased Insurance in Force**The value of purchasedinsurance in force arising from the acquisition of a life insurance subsidiaryand a block of life insurance business is being amortized in proportion toprojected future premium revenues or estimated gross profits. Such amortizationis included in insurance operating expenses. If these projections should change,the amortization is adjusted prospectively. This asset was increased $7,796,000($8,523,000 - 2000 and $9,313,000 - 1999) for accrual of interest and reduced$15,268,000 ($16,326,000 - 2000 and $18,008,000 - 1999) for amortization. Theincrease for accrual of interest for the life insurance subsidiary wascalculated using a 13.0 percent interest rate for the life block and a 7.0percent rate for the accident and health block and, on the acquired block, a 7.0percent interest rate on the traditional life portion and a 5.4 percent rate onthe interest sensitive portion. Total accumulated accrual of interest andamortization equal $70,738,000 and $113,209,000, respectively. The value ofpurchased insurance in force is adjusted for the impact on estimated grossprofits of net unrealized gains and losses on securities. Based upon currentconditions and assumptions as to future events, the Company expects that theamortization will be between 6 and 9 percent of the asset’s currentcarrying amount in each of the next five years. 
**SeparateAccounts**These accounts arise fromthe sale of variable life insurance and annuity products. Their assets arelegally segregated and are not subject to the claims which may arise from anyother business of the Company. These assets are reported at fair value since theunderlying investment risks are assumed by the policyholders. Therefore therelated liabilities are recorded at amounts equal to the underlying assets.Investment income and gains or losses arising from separate accounts accruedirectly to the policyholders and are, therefore, not included in investmentearnings in the accompanying consolidated income statement. Revenues to theCompany from separate accounts consist principally of contract maintenancecharges, administrative fees and mortality and risk charges. 
**ParticipatingPolicies**Participating business at yearend approximates 11 percent of the consolidated life insurance in force. Theamount of dividends to be paid is determined annually by the Board of Directors.Provision has been made in the liability for future policy benefits to allocateamounts to participating policyholders on the basis of dividend scalescontemplated at the time the policies were issued. Additional provisions havebeen made for policyholder dividends in excess of the original scale which havebeen declared by the Board of Directors. 
**Investments**Securities held to maturityand short-term investments are stated at cost adjusted for amortization ofpremium and accrual of discount. Securities available for sale are stated atfair value. Unrealized gains and losses on securities available for sale arereduced by deferred income taxes and related adjustments to deferred acquisitioncosts and the value of purchased insurance in force, and are included inaccumulated other comprehensive income. The Company reviews and analyzes itssecurities on an ongoing basis. Based upon these analyses, specificsecurities’ values are written down to expected realizable values throughearnings as a realized investment loss if the security’s impairment invalue is considered to be other than temporary. 
Mortgage loans are statedat cost adjusted for amortization of premium and accrual of discount less anallowance for probable losses. A loan is considered impaired if it is probablethat contractual amounts due will not be collected. An allowance for probableimpairment losses is based upon the loan’s market price, or the fair valueof the underlying collateral on a net realizable basis. Loans in foreclosure andloans considered to be impaired are placed on a non-accrual status. Real estateis carried at depreciated cost. Real estate joint ventures are valued at costadjusted for the Company’s equity in earnings since acquisition. Policyloans are carried at cost less payments received. Premiums and discounts onfixed maturity securities are amortized over the life of the related security asan adjustment to yield using the effective interest method. Realized gains andlosses on disposals of investments, determined by the specific identificationmethod, are included in investment revenues. 

**Federal IncomeTaxes**Income taxes have beenprovided using the liability method. Under that method, deferred tax assets andliabilities are determined based on the differences between their financialreporting and their tax bases and are measured using the enacted tax rates. 
**Income PerShare**Due to the Company’scapital structure and lack of other potentially dilutive securities, there is nodifference between basic and diluted earnings per common share for any of theyears or periods reported. The weighted average number of shares outstandingduring the year was 12,027,241 shares (12,033,725 shares - 2000 and 12,316,220shares - 1999). The number of shares outstanding at year end was 12,026,628(12,021,477 - 2000). 
**Statutory Information andStockholder Dividends Restrictions**The Company’searnings, unassigned surplus (retained earnings) and capital and surplus(equity), on the statutory basis used to report to regulatory authorities,follow. 
200120001999Net gain from operations    $  42,097    45,730    41,902Net income                     23,476    42,265    42,012Unassigned surplus    at December 31            329,972   311,804   281,254Capital and surplus    at December 31            266,208   248,014   219,875
Stockholder dividends maynot exceed statutory unassigned surplus. Additionally, under Missouri law, theCompany must have the prior approval of the Missouri Director of Insurance inorder to pay a dividend exceeding the greater of statutory net gain fromoperations for the preceding year or 10 percent of capital and surplus at theend of the preceding year. The maximum dividend payable in 2002 without priorapproval is $42,097,000. The Company believes these statutory limitations imposeno practical restrictions on its dividend payment plans. 

The National Association ofInsurance Commissioners’ comprehensive new guidelines to statutoryaccounting principles and practices for the life insurance industry took effectJanuary 1, 2001, and caused the Company’s capital and surplus to decrease$1.7 million. 

The Company is required todeposit a defined amount of assets with state regulatory authorities. Suchassets had an aggregate carrying value of $18,000,000 ($18,000,000 - 2000 and$21,000,000 - 1999). 

**Comprehensive Income (Loss)**Comprehensive income iscomprised of net income and other comprehensive income which includes unrealizedgains or losses on securities available for sale and unfunded pensionliabilities, as shown at the right. 
                          Unrealized    Unfunded                          Gain (Loss)   Pension                         on SecuritiesLiabilityTotal**2001:**Unrealized holding gains  arising during the year    $  13,972              13,972Less:  Realized losses included            in net income      (18,404)            (18,404)Net unrealized gains            32,376              32,376Increase in unfunded  pension liability                  -    (4,931)   (4,931)Effect on deferred  acquisition costs             (2,113)             (2,113)Deferred income taxes          (10,584)    1,726    (8,858)Other comprehensive  income (loss)              $  19,679    (3,205)   16,4742000:Unrealized holding gains  arising during the year    $   9,422               9,422Less:  Realized losses included            in net income       (6,467)             (6,467)Net unrealized gains            15,889              15,889Increase in unfunded  pension liability                  -    (8,871)   (8,871)Effect on deferred  acquisition costs             (1,145)             (1,145)Deferred income taxes           (5,163)    3,105    (2,058)Other comprehensive  income (loss)               $  9,581    (5,766)    3,8151999:Unrealized holding losses  arising during the year    $(172,801)           (172,801)Less:  Realized losses included            in net income       (2,527)             (2,527)Net unrealized losses         (170,274)           (170,274)Decrease in unfunded  pension liability                  -       554       554Effect on deferred  acquisition costs               8,858               8,858Deferred income taxes            56,495     (194)    56,301Other comprehensive  income (loss)              $ (104,921)     360   (104,561)
The accumulated balances related to each component of accumulated other comprehensive income follow.                                        Increase  in                            Unrealized     Unfunded                             Gain (Loss)   Pension                            on SecuritiesLiabilityTotalDecember 31, 1999           $ (53,379)    (5,716)   (59,095)Other comprehensive   income (loss) for 2000       9,581     (5,766)     3,815December 31, 2000             (43,798)   (11,482)   (55,280)Other comprehensive   income (loss) for 2001      19,679     (3,205)    16,474December 31, 2001           $ (24,119)   (14,687)   (38,806)
**REINSURANCE**200120001999**Life insurance in force** (in millions):    Direct                    $  24,019   24,120    23,616    Ceded                        (7,144)  (6,514)   (5,483)    Assumed                       2,626    2,818     3,131        Net                   $  19,501   20,424    21,264**Premiums:**Life insurance:    Direct                    $ 128,746  120,908   127,805    Ceded                       (35,721) (27,818)  (29,255)    Assumed                       4,934    6,105     5,536        Net                   $  97,959   99,195   104,086 Accident and health:    Direct                    $  51,238   54,769    56,723    Ceded                        (5,427) (10,128)  (14,087)        Net                   $  45,811   44,641    42,636
Contract charges arisegenerally from directly issued business. However contract charges also arisefrom a block of business assumed during 1997 as described below. Ceded benefitrecoveries were $44,200,000 ($49,883,000 - 2000 and $49,687,000 - 1999). 

Old American has twocoinsurance agreements. One agreement reinsures certain whole life policiesissued by Old American prior to December 1, 1986. These policies had a facevalue of $94.3 million as of this year end. The reserve for future policybenefits ceded under this agreement was $41,785,000 ($44,331,000 - 2000). Thesecond agreement ceded $10.4 million of home health care reserves in 1998. 

Kansas City Life acquired ablock of traditional life and universal life-type products in 1997. As of thisyear end, the block had $2.6 billion of life insurance in force ($2.8 billion -2000). The block generated life insurance premiums of $4,628,000 ($5,544,000 -2000). The Company ceded its group long-term disability reserves, totaling $5.2million in 1999 and also $5.6 million of group life waiver of premium reservesin 2001. 

Sunset Life entered into ayearly renewable term reinsurance agreement, effective January 1, 2002, wherebyit ceded 80 percent of its retained mortality risk on traditional and universallife policies. The insurance in force ceded under this agreement approximates$3.1 billion. 

The maximum retention onany one life is $350,000 for ordinary life plans and $100,000 for groupcoverage. A contingent liability exists with respect to reinsurance, which maybecome a liability of the Company in the unlikely event that the reinsurersshould be unable to meet obligations assumed under reinsurance contracts.Reinsurers’ solvency is reviewed annually. 

**PROPERTY AND EQUIPMENT**20012000Land                               $     766        766Home office complex                   20,252     21,444Furniture and equipment               35,110     34,741                                      56,128     56,951Less accumulated depreciation        (37,115)   (36,250)                                   $  19,013     20,701
Property and equipment are stated at cost and depreciated using the straight-line method. The home office isdepreciated over 25 to 50 years and furniture and equipment over 3 to 10 years, their estimated useful lives.
**NOTES PAYABLE**20012000Federal Home Loan Bank loans with  various maturities and a weighted  average variable interest rate,  currently 2.43 percent, secured  by mortgage-backed securities  totaling $111,581,000                $  95,000   41,520Overnight federal funds, with a  daily maturity, an interest rate  of 1.85 percent, secured by  specified securities                     1,049        -Real estate loan due December 2010,  with an interest rate of 7.50 percent,  secured by the property                    730        -$  96,779   41,520
As a member of the FederalHome Loan Bank with a capital investment of $8,983,000, the Company has theability to borrow up to twenty times its capital investment, or $179,656,000,from the bank when collateralized. The Company earned a 4.54 percent averagerate on the capital investment in the bank for 2001. 

The Company has unsecuredrevolving credit loan agreements with banks providing a $60,000,000 line ofcredit with a variable interest rate, currently 2.00 percent. 

With the exception of thereal estate loan, all borrowing is used to enhance investment strategies.Interest paid on all borrowings equaled $3,975,000 ($2,146,000 - 2000 and$1,135,000 - 1999). 

**FAIR VALUE OF     FINANCIALINSTRUMENTS**
The carrying amounts forcash, short-term investments and policy loans as reported in the accompanyingbalance sheet approximate their fair values. The fair values for securities arebased on quoted market prices, where available. For those securities notactively traded, fair values are estimated using values obtained fromindependent pricing services or, in the case of private placements, areestimated by discounting expected future cash flows using a current market rateapplicable to the yield, credit quality and maturity of the investments. Fairvalues for mortgage loans are based upon discounted cash flow analyses using aninterest rate assumption 2 percent above the comparable U.S. Treasury rate. 

Fair values for the Company's liabilities under investment-type insurance contracts, included with accumulatedcontract values for flexible annuities and with otherpolicyholder funds for supplementary contracts without life contingencies, are estimated to be their cashsurrender values.
Fair values for theCompany’s insurance contracts other than investment contracts are notrequired to be disclosed. However, the fair values of liabilities under allinsurance contracts are taken into consideration in the Company’s overallmanagement of interest rate risk, which minimizes exposure to changing interestrates through the matching of investment maturities with amounts due underinsurance contracts. 

The carrying amounts and fair values of the financial instruments follow.20012000                Carrying      Fair      Carrying    Fair                 AmountValueAmountValue**Investments:**  Securities available    for sale    $2,129,952  2,129,952  2,028,426  2,028,426  Securities held    to maturity          -          -     80,572     80,463  Mortgage loans   433,095    441,887    396,731    409,000**Liabilities:**  Individual and    group annuities$677,597   662,116    668,233    652,898  Supplementary    contracts without    life contingencies18,917   18,917     20,761     20,761
The following Investments Note provides further details regarding the investments above.
**INVESTMENTS**
**Investment Revenues**Major categories of investment revenues are summarized as follows.200120001999**Investment income:**    Fixed maturities      $  147,610    156,117     157,766    Equity securities          7,533      9,678       9,378    Mortgage loans            33,343     29,478      27,608    Real estate               10,735     10,563       9,907    Policy loans               7,818      7,852       7,959    Short-term                 4,649      3,025       3,639    Other                      5,883      3,914       3,709                             217,571    220,627     219,966Less investment expenses     (15,197)   (13,492)    (12,284)                          $  202,374    207,135     207,682**Realized gains (losses):**    Fixed maturities      $  (15,956)   (12,614)     (2,714)    Equity securities         (2,448)       517         126    Mortgage loans               -        2,970       1,500    Real estate                2,048      4,316       3,684    Other                        608        940         264$  (15,748)    (3,871)      2,860
**Unrealized Gains and Losses**Unrealized gains (losses) on the Company's securities follow.200120001999**Available for sale:**  End of year             $  (38,382)   (70,758)    (86,647)  Effect on deferred    acquisition costs          1,268      3,381       4,526  Deferred income taxes       12,995     23,579      28,742$  (24,119)   (43,798)    (53,379)  Increase (decrease) in    net unrealized gains    during the year:      Fixed maturities    $   17,129      9,697     (99,595)      Equity securities        2,550       (116)     (5,326)                          $   19,679      9,581    (104,921)**Held to maturity:**  End of year             $        -       (109)        (36)  Increase (decrease) in    net unrealized gains    during the year       $      109        (73)     (8,047)
**Securities**The amortized cost and fair value of investments in securities at this year end follow.                                      Gross                     Amortized      Unrealized        Fair                        CostGainsLossesValue**Available for sale:**Bonds:  U.S. government  $    47,991    2,935      161     50,765  Public utility       290,670    4,765   10,051    285,384  Corporate          1,198,505   18,564   55,078  1,161,991  Mortgage-backed      532,978   11,308    8,677    535,609  Other                 22,847      440       86     23,201Redeemable   preferred stocks      5,184       63        4      5,243Fixed maturities     2,098,175   38,075   74,057  2,062,193Equity securities       70,159      778    3,178     67,759$ 2,168,334   38,853   77,235  2,129,952
The amortized cost and fair value of investments in securities at last year end follow.                                      Gross                      Amortized     Unrealized       Fair                         CostGainsLossesValue**Available for sale:**Bonds:  U.S. government  $    45,050    1,539      221     46,368  Public utility       290,415    2,143   10,726    281,832  Corporate          1,233,304   11,359   72,392  1,172,271  Mortgage-backed      381,224    5,138    2,051    384,311  Other                 47,581    1,109       60     48,630Redeemable   preferred stocks        745        8        8        745Fixed maturities     1,998,319   21,296   85,458  1,934,157Equity securities      100,866    2,141    8,738     94,269  2,099,185   23,437   94,196  2,028,426**Bonds held to maturity:**Public utility          12,474      817       18     13,273Corporate               62,947    1,123    2,308     61,762Other                    5,151      277        -      5,428     80,572    2,217    2,326     80,463$ 2,179,757   25,654   96,522  2,108,889
The Company holds one non-income producing fixed maturity with a par value of $9,600,000.
The distribution of the fixed maturity securities' contractual maturities at this year end follows. However,expected maturities may differ from these contractual maturities since borrowers may have the right to call orprepay obligations.                                      Amortized         Fair                                        CostValue**Available for sale:**Due in one year or less             $    52,617      52,401Due after one year through five years   337,641     346,570Due after five years through ten years  321,438     315,641Due after ten years                     853,501     811,972Mortgage-backed bonds                   532,978     535,609$ 2,098,175   2,062,193
Sales of investments in securities available for sale, excluding normal maturities and calls, follow.200120001999Proceeds                      $ 678,423   393,934   428,943Gross realized gains             17,971     7,292     9,482Gross realized losses            16,132    13,541    10,371
The Company does not hold securities of any corporation and its affiliates which exceeded 10 percent ofstockholders' equity.
No derivative financial instruments are employed.
**Mortgage Loans**All mortgage loans are income producing, as they were last year. Mortgage loans are carried net of a valuationreserve of $4,030,000, unchanged from the previous year.
The mortgage portfolio is diversified geographically and by property type as follows.                               2001                      2000                     Carrying      Fair       Carrying     Fair                      AmountValueAmountValue**Geographic region:**  East north central $  34,011      33,169      28,139    28,612  Mountain              75,771      77,646      79,430    81,995  Pacific              153,791     156,678     137,559   141,781  West south central    66,811      69,535      58,847    61,521  West north central    75,667      77,580      71,921    73,799  Other                 31,074      31,309      24,865    25,322  Valuation reserve     (4,030)     (4,030)     (4,030)   (4,030)                     $ 433,095     441,887     396,731   409,000**Property type:**  Industrial         $ 281,786     285,614     258,195   265,770  Retail                15,566      16,422      18,699    19,436  Office               121,056     124,458     107,534   111,024  Other                 18,717      19,423      16,333    16,800  Valuation reserve     (4,030)     (4,030)     (4,030)   (4,030)                      $433,095     441,887     396,731   409,000
The Company has commitmentswhich expire in 2002 to originate mortgage loans of $6,460,000. 

No mortgage loans were foreclosed upon and transferred to real estate investments during the year (none - 2000and 1999).
One mortgage loan wasacquired in the sale of real estate during the year for $875,000 (none - 2000and 1999). 

**Real Estate**Detail concerning the Company's real estate investments follows.20012000Penntower office building, at cost:    Land                              $   1,106      1,106    Building                             18,741     18,649    Less accumulated depreciation       (12,027)   (11,477)Foreclosed real estate, at lower of    cost or net realizable value          1,900      2,090Other investment properties, at cost:    Land                                 15,449     11,050    Buildings                            51,965     37,958    Less accumulated depreciation       (15,357)   (14,933)                                      $  61,777     44,443
Investment real estate,other than foreclosed properties, is depreciated on a straight-line basis.Penntower office building is depreciated over 60 years and all other propertiesfrom 10 to 35 years. Foreclosed real estate is carried net of a valuationallowance, if necessary, to reflect net realizable value. No such allowance wasneeded at year end 2001 ($625,000 - 2000). 

The Company held non-incomeproducing real estate equaling $9,735,000 ($5,236,000 - 2000). 

**PENSIONS AND OTHERPOSTRETIREMENT BENEFITS**
The Company has pension and otherpostretirement benefit plans covering substantially all its employees. Thedefined benefits pension plan covers employees who were age 55 or over with atleast 15 years of vested service at December 31, 1997. This plan’s benefitsare based on years of service and the employee’s compensation during thelast five years of employment. Employees have a cash balance account consistingof credits to the account based upon an employee’s years of service andcompensation and interest credits. The postretirement medical plans for theemployees, full-time agents, and their dependents are contributory withcontributions adjusted annually. The Company pays these medical costs as due andthe plan incorporates cost-sharing features. The postretirement life insuranceplan is noncontributory with level annual payments over the participants’expected service periods. The plan covers only those employees with at least oneyear of service as of December 31, 1997. The benefits in this plan are frozenusing the employees’ years of service and compensation as of December 31,1997. The tables at the right outline the plans’ funded status and theirimpact on the financial statements. 

Noncontributory definedcontribution retirement plans for general agents and eligible sales agentsprovide supplemental payments based upon earned agency first year individuallife and annuity commissions. Contributions to these plans were $162,000($143,000 - 2000 and 1999). Noncontributory deferred compensation plans foreligible agents based upon earned first year commissions is also offered.Contributions to these plans were $639,000 ($583,000 - 2000 and $609,000 -1999). 

Savings plans for eligibleemployees and agents match employee contributions up to 6 percent of salary andagent contributions up to 2.5 percent of prior year paid commissions.Contributions expensed to the plan were $1,459,000 ($1,425,000 - 2000 and$1,468,000 - 1999). The Company may contribute an additional profit sharingamount up to 4 percent of salary depending upon corporate profits. The Companymade no profit sharing contribution for 2001 ($1,098,000 - 2000 and none -1999). 

A noncontributory trusteed employee stock ownership plan covers substantially all salaried employees. Nocontributions have been made to this plan since 1992.                                                   Pension Benefits           Other Benefits                                                  2001200020012000Accumulated benefit obligation                 $ 103,655          98,273         -             -**Change in plan assets:**Fair value of plan assets at beginning of year $  87,441          85,240     1,436         1,403Return on plan assets                              3,814           4,033        77            74Company contributions                              2,605           4,000         -             -Benefits paid                                     (6,164)         (5,832)      (56)          (41)  Fair value of plan assets at end of year     $  87,696          87,441     1,457         1,436**Change in projected benefit obligation:**Benefit obligation at beginning of year        $ 102,089          98,351    16,326        16,942Service cost                                       1,940           1,913       708           530Interest cost                                      7,442           7,365     1,345         1,144Net (gain) loss from past experience               2,365             395     1,762        (1,641)Benefits paid                                     (6,164)         (5,935)     (582)         (649)  Benefit obligation at end of year            $ 107,672         102,089    19,559        16,326Plan underfunding                              $ (19,976)        (14,648)  (18,102)      (14,890)Unrecognized net (gain) loss                      32,570          28,291       408        (1,020)Unrecognized prior service cost                   (5,852)         (6,500)        -             -Unrecognized net transition asset                   (105)           (311)        -             -  Prepaid (accrued) benefit cost               $   6,637           6,832   (17,694)      (15,910)**Amounts recognized in the  consolidated balance sheet:**Accrued benefit liability                      $ (15,959)        (10,833)  (17,694)      (15,910)Accumulated other comprehensive income            22,596          17,665         -             -  Net amount recognized                        $   6,637           6,832   (17,694)      (15,910)**Weighted average assumptions:**Discount rate                                       7.25 %          7.50      7.25          7.50Expected return on plan assets                      8.50            8.75      5.50          5.50Rate of compensation increase                       4.50            4.50         -             -
The assumed growth rate of health care costs has a significant effect on the amounts reported as the table belowdemonstrates.                                           One Percentage Point                                              Change in the Growth Rate                                             IncreaseDecreaseService and interest cost components       $      446           (340)Postretirement benefit obligation               3,599         (2,815)
The components of the net periodic benefits costfollow.                                              Pension Benefits                   Other Benefits                                        20012000199920012000       1999Service cost                         $ 1,940     1,912      2,760           708       530       626Interest cost                          7,442     7,365      7,673         1,345     1,144     1,200Expected return on plan assets        (7,252)   (7,211)    (9,067)          (79)      (78)      (88)Amortization of:  Unrecognized net (gain) loss         1,523     1,687      1,014           (24)      (20)       52  Unrecognized prior service cost       (647)     (647)      (647)            -         -         -  Unrecognized net transition asset     (206)     (206)      (206)            -         -         -Net periodic benefits cost           $ 2,800     2,900      1,527         1,950     1,576     1,790
For measurement purposes, a 9.5 percent annual increase in the per capita cost of covered health care benefits was assumedto decrease gradually to 5 percent in 2010 and thereafter.
**SEGMENT INFORMATION**                                               Kansas City Life          Sunset         Old                                            IndividualGroupLifeAmericanTotal**2001:**Revenues from external customers          $   109,700      57,389        25,101        72,873      265,063Investment income, net                        151,800         510        33,343        16,721      202,374Segment income (loss)                          22,991        (692)       (1,501)        9,124       29,922Other significant noncash items:  Increase in policy reserves                  50,675         469        17,692         5,855       74,691  Amortization of deferred    acquisition costs                          17,034           -           247        10,484       27,765  Amortization of the value of    purchased insurance in force                4,104           -             -         3,368        7,472Interest expense                                3,254           -             -           782        4,036Income tax expense (benefit)                    3,322        (296)       (3,672)        2,264        1,618Segment assets                              2,775,280       6,993       547,145       435,171    3,764,589Expenditures for other long-lived assets        2,004          65             -            30        2,0992000:Revenues from external customers          $   110,339      56,267         28,272       74,765      269,643Investment income, net                        155,420         767         34,456       16,492      207,135Segment income                                 32,403         831          8,868        6,981       49,083Other significant noncash items:  Increase (decrease) in policy reserves       49,560        (389)        17,721        6,924       73,816  Amortization of deferred    acquisition costs                          11,437           -          5,138       10,253       26,828  Amortization of the value of    purchased insurance in force                4,305           -              -        3,498        7,803Interest expense                                2,177           -              1            5        2,183Income tax expense                             12,172         356          3,751        3,142       19,421Segment assets                              2,696,884      10,948        531,393      407,036    3,646,261Expenditures for other long-lived assets        2,640          40              -           15        2,6951999:Revenues from external customers          $   113,399      53,311         26,750       76,091      269,551Investment income, net                        158,017       1,083         33,617       14,965      207,682Segment income (loss)                          31,408        (898)         8,893        5,642       45,045Other significant noncash items:  Increase in policy reserves                  60,072         681         16,411        8,042       85,206  Amortization of deferred    acquisition costs                          12,443           -          7,765       11,053       31,261  Amortization of the value of    purchased insurance in force                5,128           -              -        3,567        8,695Interest expense                                1,148           -              -            -        1,148Income tax expense (benefit)                   12,931        (385)         3,898        2,574       19,018Segment assets                              2,679,521      16,107        528,708      396,948    3,621,284Expenditures for other long-lived assets        3,742         214              3          298        4,257
**Enterprise-Wide Disclosures**200120001999Revenues from external customers by line of business:  Variable life insurance and annuities             $  17,811     16,181     11,153  Interest sensitive products                          89,559     93,602     97,720  Traditional individual insurance products            91,330     92,078     97,616  Group life and disability products                   52,440     51,758     49,106  Group ASO services                                    4,949      4,509      4,205  Other                                                 8,974     11,515      9,751      Total                                         $ 265,063    269,643    269,551
Company operations havebeen classified and summarized into the four reportable segments at left. Thesegments, while generally classified along Company lines, are based upondistribution method, product portfolio and target market. The Parent Company wasdivided into two segments. The Kansas City Life - Individual segment consists ofsales of variable life and annuities, interest sensitive products andtraditional life insurance products by a career general agency sales force. TheKansas City Life - Group segment consists of sales of group life, disability anddental products and administrative services only (ASO) by the Company’scareer general agency sales force and appointed group agents. The Sunset Lifesegment consists of sales of interest sensitive and traditional products bypersonal producing general agents. The Old American segment markets whole lifefinal expense products to seniors through a general agency sales force. 

Separate investmentportfolios are maintained for each of the companies. However, investments areallocated to the group segment based upon its cash flows. Its investment incomeis modeled using the year of investment method. Home office functions are fullyintegrated for the three companies in order to maximize economies of scale.Therefore, operating expenses are allocated to the segments based upon internalcost studies which are consistent with industry cost methodologies. 

The totals at left agree tothe selected financial data which reconciles to the consolidated financialstatements. Intersegment revenues are not material. The Company operates solelyin the United States and no individual customer accounts for 10 percent or moreof the Company’s revenue. 

**FEDERAL INCOME TAXES**
A reconciliation of theFederal income tax rate and the actual tax rate experienced is shown below. 
200120001999Federal income tax rate              35  %   35      35Special tax credits                 (15)     (6)     (5)Release excess income tax liability  on years closed to IRS audit      (14)      -       -Other permanent differences          (1)     (1)      -Actual income tax rate                5  %   28      30
The tax effects of temporary differences that give rise to significant portions of the deferred tax assets andliabilities are presented below.20012000Deferred tax assets:  Basis differences between tax and    GAAP accounting for investments  $   13,034   18,493  Future policy benefits                 45,753   50,404  Employee retirement benefits           16,826   14,579  Other                                  10,695    7,670Gross deferred tax assets                86,308   91,146Deferred tax liabilities:  Capitalization of policy acquisition    costs, net of amortization           46,953   47,235  Property and equipment, net             3,675    3,708  Value of insurance in force            27,911   30,449  Other                                     178      884Gross deferred tax liabilities           78,717   82,276  Net deferred tax asset             $    7,591    8,870
A valuation allowance mustbe established for any portion of the deferred tax asset which is believed notto be realizable. In management’s opinion, it is more likely than not thatthe Company will realize the benefit of the net deferred tax asset and,therefore, no valuation allowance has been established. 

Federal income taxes werepaid this year of $2,350,000 ($17,364,000 - 2000 and $17,884,000 - 1999). 

Policyholders’surplus, which is frozen under the Deficit Reduction Act of 1984, is $40,500,000for Kansas City Life, $2,800,000 for Sunset Life and $13,700,000 for OldAmerican. The Companies do not plan to distribute their policyholders’surplus. Consequently, the possibility of such surplus becoming subject to taxis remote, and no provision has been made in the financial statements for taxesthereon. Should the balance in policyholders’ surplus become taxable, thetax computed at current rates would approximate $20,000,000. 

Income taxed on a currentbasis is accumulated in shareholders’ surplus and can be distributed tostockholders without tax to the Company. Shareholders’ surplus equals$411,637,000 for Kansas City Life, $95,780,000 for Sunset Life and $76,740,000for Old American. 

The income tax expense (benefit) is recorded in various places in the Company's financial statements as detailedbelow.200120001999Net income                         $   1,618   19,421   19,018Stockholders' equity:  Related to:    Unrealized gains (losses), net    10,584    5,163  (56,495)    Decrease (increase) in      unfunded pension liability      (1,726)  (3,105)     194Total income tax expense (benefit)  included in financial statements $  10,476   21,479  (37,283)
**QUARTERLY CONSOLIDATED   FINANCIAL DATA** (unaudited)FirstSecondThirdFourth**2001:**Total revenues      $   116,833  118,255  112,330  104,271Net income                9,518   11,466    8,782      156Per common share,  basic and diluted         .79      .95      .73      .022000:Total revenues      $   120,513  117,874  118,332  116,188Net income               13,118   13,722   14,576    7,667Per common share,  basic and diluted        1.09     1.14     1.21      .64
**CONTINGENT LIABILITIES**
Over the past several years, life insurers have faced extensive claims, including class action lawsuits, allegingimproper marketing practices. Sunset Life is the defendant in such a class action lawsuit regarding its salespractices. In connection with a preliminary settlement of this matter, the Company increased its reserves $16.3million in 2001 based upon information currently available. A final hearing is scheduled for February 28, 2002.Given the uncertainties associated with estimating the reserve, it is reasonably possible that the final cost ofany settlement could differ materially from the amounts presently estimated. This estimate will continue to beupdated as more specific information is developed. However, based on information available at this time and theuncertainties associated with any settlement, additional costs related to this item cannot be estimated withprecision.
In addition to the above, the Company and certain of its subsidiaries are defendants in, or subject to, otherclaims or legal actions that arose in the ordinary course of business. Some of these lawsuits arose injurisdictions that permit punitive damages disproportinate to the actual damages alleged. Although no assurancescan be given and no determinations can be made at this time as to the outcome of any of these lawsuits orproceedings, the Company and its subsidiaries believe that there are meritorious defenses for these claims andare defending them vigorously. In management's opinion the amounts ultimately paid in these suits, if any, wouldhave no material effect on the Company's consolidated results of operations or financial position.
**REPORTS OF                                               INDEPENDENT AUDITORS**
**To the Board of Directors and Stockholders                                       of Kansas City Life Insurance Company**
        We have audited the accompanying consolidated balance sheet of Kansas City Life Insurance Company andsubsidiaries (the Company) as of December 31, 2001 and 2000, and the related consolidated statements of income,stockholders' equity, and cash flows for the years then ended. These consolidated financial statements are theresponsibility of the Company's management. Our responsibility is to express an opinion on these consolidatedfinancial statements based on our audits.        We conducted our audits in accordance with auditing standards generally accepted in the United States ofAmerica. Those standards require that we plan and perform the audit to obtain reasonable assurance about whetherthe financial statements are free of material misstatement. An audit includes examining, on a test basis,evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing theaccounting principles used and significant estimates made by management, as well as evaluating the overallfinancial statement presentation. We believe that our audits provide a reasonable basis for our opinion.        In our opinion, the consolidated financial statements referred to above present fairly, in all materialrespects, the financial position of Kansas City Life Insurance Company and subsidiaries as of December 31, 2001and 2000, and the results of their operations and their cash flows for the years then ended in conformity withaccounting principles generally accepted in the United States of America.
/s/KPMG LLPKansas City, MissouriJanuary 25, 2002
**To the Board of Directors and Stockholders                                       of Kansas City Life Insurance Company**
        We have audited the accompanying consolidated statements of income, stockholders' equity, and cash flows ofKansas City Life Insurance Company and subsidiaries (the Company) for the year ended December 31, 1999. Thesefinancial statements are the responsibility of the Company's management. Our responsibility is to express anopinion on these financial statements based on our audit.        We conducted our audit in accordance with auditing standards generally accepted in the United States. Thosestandards require that we plan and perform the audit to obtain reasonable assurance about whether the financialstatements are free of material misstatement. An audit includes examining, on a test basis, evidence supportingthe amounts and disclosures in the financial statements. An audit also includes assessing the accountingprinciples used and significant estimates made by management, as well as evaluating the overall financialstatement presentation. We believe that our audit provides a reasonable basis for our opinion.        In our opinion, the financial statements referred to above present fairly, in all material respects, theconsolidated results of the operations and cash flows of  Kansas City Life Insurance Company and subsidiaries forthe year ended December 31, 1999, in conformity with accounting principles generally accepted in the UnitedStates.
/s/Ernst & Young  LLPKansas City, MissouriJanuary 24, 2000
**STOCKHOLDER INFORMATION**
**CORPORATE HEADQUARTERS**        Kansas City Life Insurance Company        3520 Broadway        Post Office Box 219139        Kansas City, Missouri 64121-9139        Telephone:  (816) 753-7000        Fax: (816) 753-4902        Internet: http://www.kclife.com        E-mail: kclife@kclife.com
**NOTICE OF ANNUAL MEETING**        The annual meeting of stockholders will be held at        9 a.m. Thursday, April 18, 2002, at Kansas City Life's corporate headquarters.
**TRANSFER AGENT**        Cheryl Keefer, Assistant Secretary        Kansas City Life Insurance Company        Post Office Box 219139        Kansas City, Missouri 64121-9139
**10-K REQUEST**        Stockholders may request a free copy of Kansas City Life's Form 10-K, as filed with the Securities and        Exchange Commission, by writing to Secretary, Kansas City Life Insurance Company.
**SECURITY HOLDERS**        As of February 11, 2002, Kansas City Life had approximately 670 security holders, including individual        participants in security position listings.
**STOCK AND DIVIDEND INFORMATION        Stock Quotation Symbol**        Over-the-Counter--KCLI                                    Bid           Dividend                             HighLowPaid                                     (per share)     2001:     First quarter         $  40.25     34.38        $ .27     Second quarter           39.63     34.84          .27     Third quarter            39.80     34.50          .27     Fourth quarter           37.46     35.05          .27$1.08     2000:     First quarter         $  35.63     22.13        $ .25     Second quarter           31.00     23.63          .25     Third quarter            35.38     26.13          .25     Fourth quarter           35.31     29.00          .25$1.00
     A quarterly dividend of $.27 per share was paid February 25, 2002.
Over-the-countermarket quotations are compiled according to Company records and may reflectinter-dealer prices, without markup, markdown or commission and may notnecessarily represent actual transactions.