Exhibit 13, Form 10-K
                                                  Kansas City Life
                                                  Insurance Company


MANAGEMENT'S DISCUSSION
and analysis of financial condition and results of operations

OPERATING RESULTS
     Operating  earnings per share  reached a then record level of $6.52 in 1996
but  declined  12  percent  in 1997 to $5.72,  and then rose 16 percent to a new
record level of $6.63 in 1998.  Realized  investment gains varied over the three
years:  $3.0 million in 1996,  $14.5  million in 1997 and $11.4 million in 1998.
Including  these  gains,  net income rose from $6.84 a share in 1996 to $7.25 in
1997 to $7.83 in 1998,  an  average  growth  rate of 7  percent  a year.  Pretax
operating  margins  averaged  12.1  percent over the three years while return on
equity averaged 9.46 percent.

     The Company  acquired a block of  traditional  and interest  sensitive life
insurance  during the third  quarter of 1997 for $51.4  million,  net of related
income tax  benefits.  The block  initially  added 100,000  policies  generating
annual  insurance  revenues of $27.0 million,  and the Company  received  $216.6
million in cash.

     Investment  results are reviewed more meaningfully by excluding the effects
of the acquisition  above. On this basis,  investment income increased 2 percent
in 1997 and declined 3 percent in 1998.  Investment  assets were  unchanged from
1996  to 1997  and  grew 2  percent  in 1998 on an  amortized  cost  basis.  The
investment  portfolio's overall yield declined from 7.68 percent in 1996 to 7.20
percent in 1998 as yields on new  investments  fell below yields on  investments
lost through  maturity and repayment.  Generally all of 1998's new money,  $44.7
million,  was invested in mortgage loans.  The Company invested $74.2 million in
hedge  funds and high  yield  securities.  While it is  anticipated  that  these
investments  will return higher yields over time  commensurate  with their added
risk, their earnings  pattern will be volatile year to year. These  investments'
percentage  return  was  one-third  that  of the  portfolio  in  1998  and  thus
negatively  impacted  the  overall  yield.   Approximately  92  percent  of  the
securities  portfolio  is  investment  grade  compared  to 96  percent  in 1997.
Securities  defaults have been  insignificant.  Just 0.3 percent of the mortgage
portfolio is in foreclosure,  half the industry average.  Restructured  mortgage
loans represent 1.7 percent of the portfolio at year end 1998.

     Considerable  progress  was made  over the past  three  years in  improving
efficiency. Home office operating expenses rose 7 percent in 1997 as investments
were made in the marketing  effort.  This contributed to the strong sales growth
in 1997 and 1998 which helped to lower unit costs.  Home office costs declined 2
percent  in 1998  despite  the added  administrative  work  associated  with the
acquisition of 100,000 life policies noted  previously.  These efforts increased
efficiency by improving unit costs.  For example,  premium revenues per employee
rose 33  percent  over the past  three  years  and the  number of  policies  per
employee  increased 4 percent.  The integration of Sunset Life's operations into
the Kansas City home office in 1999 will  provide  additional  cost  savings and
unit cost improvements. These benefits will be fully realized beginning in 2000.

     The Company's  effective  Federal income tax rate was fairly constant at 29
percent  in 1996 and  1998,  and 28  percent  in  1997.  This  reduced  tax rate
reflected  investments in real estate ventures which generate affordable housing
tax credits.

     The following  comments  address the financial  performance  of each of the
Company's  four  reportable  operating  segments:  the Parent  Company,  divided
between  its  individual  and group  insurance  operations,  and each of its two
insurance  affiliates.  Refer  also  to  the  Segment  Information  Note  to the
Consolidated Financial Statements.

Kansas City Life - Individual

     Sales,  in terms of new annualized  premiums,  increased 41 percent in 1997
and 44 percent in 1998.  Variable  universal  life and annuities  generated this
growth and comprised  two-thirds of 1998 sales.  Assets  supporting the variable
products  equaled $143.0 million at year end 1998.  Sales of interest  sensitive
products,  which comprised one-third of total sales, decreased 4 percent in 1997
and were level in 1998. Total insurance  revenues,  including  renewal receipts,
increased by double-digit rates in 1997 and 1998.  However,  excluding the block
purchase, these revenues were level in 1997 and grew 14 percent in 1998.

     Mortality  experience for all life business  improved  slightly each of the
three years.  Mortality  margins for the interest  sensitive and variable lines,
combined,   improved  considerably  in  1997  and  declined  slightly  in  1998.
Investment  spreads on the interest  sensitive  products were maintained through
1997 but narrowed  somewhat in 1998.  Surrender  experience was fairly  constant
over the three  years for the  various  lines of  business  except for  flexible
annuities. These withdrawals continued to rise in line with industry experience.
Overall,  benefits  relative to operating  revenues  improved from 62 percent of
revenues in 1996 to 61 percent in 1997, and the ratio was unchanged in 1998.

     Due to the factors discussed above,  operating  earnings declined 2 percent
in 1997 but rose 13 percent in 1998 as Kansas  City Life's  individual  business
generated 68 percent of consolidated operating income.

Kansas City Life - Group

     Group  sales  declined 7 percent  in 1997 and 10 percent in 1998.  However,
sales gained momentum  leading into 1999. Much of the decline occurred in dental
as steps were taken to improve its claims  ratios.  Double-digit  growth in stop
loss sales the past two years partially  offset this decline.  The group segment
generated  9  percent  of  consolidated  sales in 1998.  Total  group  insurance
revenues,  including  renewal  premiums,  rose 26 percent in 1997 and declined 2
percent in 1998. The growth in 1997 resulted from dental and the purchase of two
blocks of  administrative  services only (ASO) business.  The purchases  doubled
ASO's annual  revenues to $4.7 million.  Overall,  group  provided 19 percent of
consolidated insurance revenues.

     Claims  ratios  were above  historical  norms the past  three  years due to
dental  in 1996 and 1997 and stop loss and  long-term  disability  in 1998.  The
dental claims ratio improved considerably in 1998.

     The group segment experienced  operating losses the past three years due to
the claims  experience  discussed above. The group segment is being analyzed and
actively managed in order to return it to profitability.

Sunset Life

     Sunset's sales declined 4 percent in 1997 but then rose 31 percent in 1998.
Flexible annuity sales rose 7 percent in 1997 and 28 percent in 1998.  Universal
life sales dipped in 1997 but then rebounded in 1998 to a slightly  higher level
than in 1996.  These  interest  sensitive  products  accounted for 91 percent of
Sunset's  sales.  Sunset  provided  one-eighth  of  consolidated  sales in 1998.
Including  renewal  receipts,  the  segment's  total  insurance  revenues rose 4
percent in 1997 and 2 percent in 1998,  and  equaled 10 percent of  consolidated
insurance revenues.

     Benefits,  as a percent of operating  revenues,  steadily  improved from 50
percent of revenues  in 1996 to 48 percent in 1998.  Universal  life  surrenders
remained  constant as a percent of  accumulated  values,  but  flexible  annuity
withdrawals increased steadily on this basis, in line with industry experience.

     Operating revenues,  which include investment earnings as well as insurance
receipts,  were largely unchanged over the three years.  Profit margins narrowed
in 1997 due to increased  amortization of deferred  acquisition  costs.  Margins
widened in 1998 reflecting  improved  benefits ratios and a 4 percent decline in
operating expenses. Therefore Sunset's operating earnings declined 12 percent in
1997  but rose 8  percent  in 1998.  The  segment  provided  22  percent  of the
consolidated  group's operating income.  Sunset's future earnings should benefit
from improved  efficiencies  due to the  integration of its operations  into the
Kansas City home office.

Old American

     New annualized premiums declined 5 percent and 23 percent in 1997 and 1998,
respectively.  Old  American  generates  sales  leads for its  agents.  However,
declining  response  rates in direct  mail  programs  in past years  resulted in
reductions in the sales force which contributed to the sales decline. Changes in
underwriting  requirements  discussed below also  negatively  impacted sales. In
order to reverse the recent sales trend, Old American is aggressively recruiting
new agents and seeks to  increase  its agent  sales force by 18 percent in 1999.
The  Company  provided 7 percent of  consolidated  sales.  The  segment's  total
insurance revenues,  including renewal premiums, were level in 1997 and declined
2 percent in 1998. Old American  generated 29 percent of consolidated  insurance
revenues.

     Benefits  rose from 62 percent of operating  revenues in 1996 to 64 percent
in 1997,  and then  returned to 62 percent in 1998.  Two steps taken during 1998
should benefit future claims  experience:  underwriting  policies and procedures
were  expanded  and the home  health  care  block was sold.  The sale had little
impact on 1998 earnings but reserve  strengthening  in the line lowered 1996 and
1997 pretax earnings a total of $4.1 million.

     Old American's  operating expenses declined both years and are considerably
below  expense  goals  established  when the  Company was  purchased.  Operating
revenues were level over the three-year period.  Profit margins narrowed in 1997
and then  widened  in 1998  due to the  claims  experience  noted  above.  Thus,
operating  earnings  equaled  $6.3  million in 1996,  dropped to $3.1 million in
1997, and then  recovered to $5.8 million in 1998. The segment  accounted for 13
percent of consolidated operating income.

Changes in Reporting Regulations

     Financial  Accounting Standard No. 130, "Reporting  Comprehensive  Income,"
requires all components of comprehensive income be displayed  prominently in the
financial  statements  as well as report  total  comprehensive  income  for each
period.  This  standard,  adopted in the first quarter of 1998, had no impact on
net earnings or stockholders'  equity and comparative  financial statements were
reclassified.

     The Company  adopted  Standard No. 131,  "Disclosures  about Segments of an
Enterprise and Related Information," at year end 1998. This standard establishes
requirements for annual and interim reporting of segment  information  including
products and services,  geographic  areas and major  customers.  The Company now
reports four segments rather than the one segment reported previously.

     Standard  No.  132,  "Employers'   Disclosures  about  Pensions  and  Other
Postretirement  Benefits,"  enhances  disclosure  requirements  from  previously
adopted  Standards No. 87 and 106.  Standard No. 132 had no financial impact and
was adopted at year end 1998.

     Standard No. 133,  "Accounting  for Derivative  Instruments and for Hedging
Activities,"  provides  comprehensive,  consistent standards for the recognition
and measurement of derivatives and hedging  activities.  It is effective for our
fiscal year 2000 and it is being  evaluated to determine  whether it will affect
the Company.

Market and Interest Rate Risk Analysis

     The majority of the  investments  are debt  instruments  and are considered
fixed income  investments.  Thus, the primary market risk affecting  Kansas City
Life is interest rate risk.  Interest and dividend income represent the greatest
portion of most fixed income  investments' total return. As interest rates fall,
the interest and dividend streams of older,  higher-yielding  investments become
relatively  more valuable  than newer,  lower-yielding  securities  and thus the
market value of the higher-yielding  investments increases.  The opposite occurs
as rates rise.  The market  value of such  investments  is  therefore  inversely
proportional to interest rates.

     As  interest  rates  have  fallen,  Kansas  City  Life's  investments  have
generally  increased  in  value.  At year  end  1998,  the  market  value of the
marketable  securities  exceeded their book value $91.6  million.  Assuming that
changes  occur  equally  over the entire yield  curve,  it is  estimated  that a
100-basis-point  change in interest  rates would  translate  to a $70.2  million
change in market value, after tax, for the securities portfolio, or 3 percent of
its value. This represents 13 percent of stockholders'  equity. This sensitivity
reflects the portfolio's duration of 4.9 years.

                                                          There-   Total   Fair
                         1999   2000   2001   2002   2003 after  Principal Value
                                                      (millions)
Corporate bonds
 currently callable       $ 79      1      -      10     12      59    161   156
  Average interest rate   7.57%  9.34      -    8.14   7.36    7.32   7.49
Mortgage backed
  securities and CMO's      54     57     43      31     21      65    271   289
  Average interest rate   7.11%  7.18   6.97    7.18   7.20    7.21   7.14
All other securities       102    106     99     124    233   1 118  1 782 1 773
  Average interest rate   6.75%  7.16   6.97    7.10   7.19    7.56   7.38
Total                     $235    164    142     165    266   1 242  2 214 2 218

     The table above sets forth expected cash flows from principal repayments of
fixed maturity  investments in the form of maturities,  calls, sinking funds and
prepayments.

     Kansas City Life owns $86.9 million of foreign  bonds,  all  denominated in
U.S.  dollars,  and consequently is not exposed to direct foreign currency risk.
There is an indirect exposure to exchange markets to the extent that the issuers
of these securities can obtain dollars to fund their obligations.

     Investments  are  managed  using  an  asset  liability   matching  program.
Obligations to policyholders in terms of benefits payments  influence the nature
and structure of the portfolio.  The matching  program  attempts to match assets
and liabilities in terms of durations and yields.

     As interest  rates  rise,  policyholders  become  more likely to  surrender
policies  or to borrow  against  their  cash  values,  often to invest in higher
yielding opportunities elsewhere.  This may force the liquidation of part of the
portfolio  as the market  value of fixed income  investments  falls.  Due to the
strength of its normal cash flow, the Company  usually can adapt to small sudden
changes in interest rates, or even larger changes that occur over longer periods
of time. Extreme, sudden market volatility,  however, poses the greatest risk. A
number of steps have been taken to quantify and  mitigate  this risk under asset
liability matching.

     For liquidity,  the Company  maintains a number of short-term  credit lines
with  the  capacity  to  borrow  additional  capital,  and has  agreements  with
corresponding  investment banks to borrow, under reverse repurchase  agreements,
additional  funds in excess of $150.0  million.  Finally,  the Company is in the
process of obtaining additional borrowing capacity through the Federal Home Loan
Bank.  At year  end,  there  were no  outstanding  balances  under  any of these
agreements.

Y2K Readiness

     Kansas City Life is closely monitoring its ability, and that of its primary
vendors and business  partners,  to be fully  operational in the year 2000. This
assessment   extends  to  both   information   technology   (IT)   systems   and
non-information  technology systems. The Company has addressed 80 percent of its
IT issues and  expects to have these fully  resolved  and all  required  changes
implemented by mid-1999.  Non-IT systems are largely  compliant,  with one minor
system yet to be  converted  during 1999.  The Company  conducts  business  with
various third parties.  These parties will be monitored until full compliance is
achieved.  Contingency  plans are being developed and will be completed by early
1999. The incremental cost of the Company's compliance effort has been estimated
at less than  $700,000  thus far, and is not expected to be  significant  in the
future.  Forecasts of costs and compliance are necessarily  based upon estimates
and numerous assumptions of future events,  including  third-party  modification
and compliance  plans,  continued  availability  of resources and other factors.
While the Company feels these are valid  assumptions and estimates,  Kansas City
Life cannot be sure these estimates will be achieved or that the assumptions are
accurate, and actual results could differ materially from those anticipated.

LIQUIDITY AND CAPITAL RESOURCES

     Kansas City Life, as other life insurers,  provides  investment  capital to
our economy.  Given this role,  liquidity is generally of little  concern.  Cash
provided by operations  averaged $46.4 million a year over the past three years.
Over this same period the Company invested $2.1 billion, including proceeds from
sales and maturities of investments and net of cash received due to the purchase
of a block of  insurance  in 1997.  Investable  cash  generated  by the variable
products is generally  segregated in separate  accounts and is not available for
general  investing by the Company.  Borrowing was minor and undertaken solely to
support  investment  strategies.  Forward  investment  commitments were minor as
well. As noted previously,  cash flow testing and asset liability  matching were
performed to ensure future cash flows will be sufficient to meet future benefits
payments.

     Kansas City Life's  statutory  equity exceeds six times the minimum capital
required  to  support  its book of  business,  as  determined  by the risk based
capital  calculations and guidelines  established by the National Association of
Insurance Commissioners.


<TABLE>
<CAPTION>


SELECTED FINANCIAL DATA
(Thousands, except per share data)

                                   1998        1997         1996        1995          1994
<S>                           <C>             <C>         <C>          <C>          <C>

Revenues:
  Insurance                   $   259 559     244 695     219 593      205 458      203 827
  Investment income, net          198 181     193 696     186 743      188 087      173 388
  Other                            14 671       9 998       9 768        8 882        9 066

     Operating revenues       $   472 411     448 389     416 104      402 427      386 281
  Realized investment gains        11 426      14 505       3 013        4 950        6 060
                              $   483 837     462 894     419 117      407 377      392 341

Operating income              $    41 085      35 433      40 357       38 521       34 919
Realized investment gains, net      7 427       9 428       1 958        3 217        3 939
  Income before
    nonrecurring items        $    48 512      44 861      42 315       41 738       38 858
Nonrecurring expenses, net    $         -           -           -            -        1 481
  Net income                  $    48 512      44 861      42 315       41 738       37 377
Per common share:
  Operating income            $      6.63        5.72        6.52         6.24         5.68
  Realized investment gains, net     1.20        1.53         .32          .52          .64
  Income before
    nonrecurring items        $      7.83        7.25        6.84         6.76         6.32
  Nonrecurring expenses, net            -           -           -            -          .24
    Net income                $      7.83        7.25        6.84         6.76         6.08

  Cash dividends              $      1.80        1.76        1.68         1.63         1.40
  Stockholders' equity:
    As reported               $     93.15       85.68       74.79        73.99        55.78
    Excluding accumulated
      other comprehensive income    85.83       79.79       74.31        69.18        64.11

Assets                        $13 577 414   3 439 452   2 954 710    2 903 768    2 663 753
Net return on invested assets        7.20 %      7.40        7.68         8.03         7.71
Life insurance in force       $26 641 664  26 595 709  22 148 738   21 023 702   20 023 820

The above is not covered by the report of independent auditors.
Per common share earnings information represents both basic and diluted earnings
per common share.
</TABLE>




CONSOLIDATED INCOME STATEMENT
(Thousands, except per share data)
                                             1998           1997         1996
REVENUE
Insurance revenues:
  Premiums:
    Life insurance                           $108 510     106 051      103 263
    Accident and health                        42 441      44 931       37 575
  Contract charges                            108 608      93 713       78 755
Investment revenues:
 Investment income, net                       198 181     193 696      186 743
  Realized investment gains, net               11 426      14 505        3 013
Other                                          14 671       9 998        9 768

     TOTAL REVENUES                           483 837     462 894      419 117

BENEFITS AND EXPENSES
Policy benefits:
  Death benefits                              107 355     100 037       87 940
  Surrenders of life insurance                 19 368      14 999       15 488
  Other benefits                               72 190      71 338       65 437
  Increase in benefit and contract reserves    84 427      86 804       85 614
Amortization of deferred acquisition costs     36 201      35 712       30 086
Insurance operating expenses                   96 347      91 381       75 227

     TOTAL BENEFITS AND EXPENSES              415 888     400 271      359 792

Income before Federal income taxes             67 949      62 623       59 325

Federal income taxes:
  Current                                      20 471      15 073       26 073
  Deferred                                     (1 034)      2 689       (9 063)

                                               19 437      17 762       17 010

NET INCOME                                   $ 48 512      44 861       42 315


Basic and diluted earnings per share            $7.83        7.25         6.84

See accompanying Notes to Consolidated Financial Statements.


CONSOLIDATED BALANCE SHEET
                                                           1998        1997
ASSETS
Investments:
  Fixed maturities:
    Available for sale, at fair value (amortized cost $2,012,975,000;
     $1,952,741,000 - 1997)                             $2 094 362   2 004 516
    Held to maturity, at amortized cost (fair value $123,515,000;
     $151,495,000 - 1997)                                  115 504     145 661
   Equity securities available for sale, at fair value
     (cost $98,509,000; $107,034,000 - 1997)               100 749     114 986
  Mortgage loans on real estate, net                       315 705     270 054
  Real estate, net                                          43 840      36 764
  Real estate joint ventures                                39 388      43 347
  Policy loans                                             122 860     123 186
  Short-term                                                59 160      74 341
  Other                                                          -       7 500
     TOTAL INVESTMENTS                                   2 891 568   2 820 355
Cash                                                        16 763      50 927
Accrued investment income                                   42 515      42 385
Receivables, net                                            12 997      10 204
Property and equipment, net                                 22 436      23 628
Deferred acquisition costs                                 218 957     209 826
Value of purchased insurance in force                      104 331     108 458
Reinsurance assets                                         117 772      99 593
Other                                                        7 067      16 096
Separate account assets                                    143 008      57 980
                                                        $3 577 414   3 439 452

LIABILITIES AND STOCKHOLDERS' EQUITY Future policy benefits:
  Life insurance                                         $ 774 701     766 583
  Accident and health                                       47 641      37 155
Accumulated contract values                              1 731 262   1 755 133
Policy and contract claims                                  34 347      37 569
Other policyholders' funds:
  Dividend and coupon accumulations                         62 726      62 056
  Other                                                     75 033      68 861
Income taxes:
  Current                                                    4 582      16 113
  Deferred                                                  43 739      39 917
Other                                                       82 442      67 491
Separate account liabilities                               143 008      57 980
     TOTAL LIABILITIES                                   2 999 481   2 908 858
Stockholders' equity:
  Common stock, par value $2.50 per share
    Authorized 18,000,000 shares, issued 9,248,340 shares   23 121      23 121
  Paid in capital                                           17 633      16 256
  Retained earnings                                        581 074     543 715
  Accumulated other comprehensive income                    45 466      36 448
  Less treasury stock, at cost (3,043,947 shares;
    3,055,275 shares - 1997)                               (89 361)    (88 946)
TOTAL STOCKHOLDERS' EQUITY                                 577 933     530 594
                                                        $3 577 414   3 439 452

See accompanying Notes to Consolidated Financial Statements.


CONSOLIDATED STATEMENT OF
STOCKHOLDERS' EQUITY
                                                    1998       1997       1996

COMMON STOCK, beginning and end of year           $ 23 121    23 121    23 121

PAID IN CAPITAL:
  Beginning of year                                 16 256    14 761    13 039
  Excess of proceeds over cost of treasury stock sold1 377     1 495     1 722

  End of year                                       17 633    16 256    14 761

RETAINED EARNINGS:
  Beginning of year                                543 715   509 748   477 826
  Net income                                        48 512    44 861    42 315
  Other comprehensive income:
    Unrealized gains (losses) on securities         15 094    33 485   (26 777)
    Increase in unfunded pension liability          (6 076)        -         -
  Comprehensive income                              57 530    78 346    15 538
  Transfer other comprehensive (income) loss to
     accumulated other comprehensive income         (9 018)  (33 485)   26 777
  Stockholder dividends of $1.80 per share
     ($1.76 - 1997 and $1.68 - 1996)               (11 153)  (10 894)  (10 393)

  End of year                                      581 074   543 715   509 748

ACCUMULATED OTHER COMPREHENSIVE INCOME:
  Beginning of year                                 36 448     2 963    29 740
  Other comprehensive income (loss)                  9 018    33 485   (26 777)

  End of year                                       45 466    36 448     2 963

TREASURY STOCK, at cost:
  Beginning of year                                (88 946)  (87 729)  (86 599)
  Cost of 12,320 shares acquired
    (20,090 shares - 1997 and 27,876 shares - 1996) (1 063)   (1 440)   (1 501)
  Cost of 23,648 shares sold
    (23,686 shares - 1997 and 39,440 shares - 1996)    648       223       371

  End of year                                      (89 361)  (88 946)  (87 729)

    TOTAL STOCKHOLDERS' EQUITY                    $577 933   530 594   462 864

See accompanying Notes to Consolidated Financial Statements.


CONSOLIDATED STATEMENT OF CASH FLOWS


                                                     1998      1997      1996
OPERATING ACTIVITIES
Net income                                      $  48 512     44 861    42 315
Adjustments to reconcile net income to
  net cash from operating activities:
    Amortization of investment premium (discount),
    net                                             2 398     (1 290)   (4 071)
    Depreciation                                    5 153      5 379     4 995
    Policy acquisition costs capitalized          (46 011)   (42 170)  (38 639)
    Amortization of deferred acquisition costs     36 201     35 712    30 086
    Realized investment gains                     (11 426)   (14 505)   (3 013)
    Changes in assets and liabilities:
     Future policy benefits                        25 855     16 227    15 831
     Accumulated contract values                  (12 264)    (9 933)    3 183
     Other policy liabilities                       6 842      7 137     5 294
     Income taxes payable and deferred            (11 399)     4 768    (8 322)
    Other, net                                       (718)    (3 685)    5 886

    NET CASH PROVIDED                              43 143     42 501    53 545

INVESTING ACTIVITIES
Purchases of available for sale investments:
  Fixed maturities                               (644 087)  (855 980) (431 916)
  Equity securities                               (28 047)   (69 434)  (18 071)
Sales of fixed maturities available for sale      372 930    503 351   140 372
Maturities and principal paydowns
  of security investments:
    Fixed maturities available for sale           216 247    163 867   131 545
     Fixed maturities held to maturity             30 453    106 188    79 017
    Equity securities available for sale           28 043     31 473     8 899
Purchases of other investments                    (78 298)  (152 045)  (46 021)
Sales, maturities and principal
  paydowns of other investments                    60 500     67 295    64 833
Acquisitions and dispositions of insurance
  blocks - net cash received (paid)               (13 250)   213 092         -

    NET CASH PROVIDED (USED)                      (55 509)     7 807   (71 342)

FINANCING ACTIVITIES
Proceeds from borrowings                            1 100    245 050     1 650
Repayment of borrowings                            (1 100)  (245 050)   (1 650)
Policyowner contract deposits                     175 421    169 699   164 677
Withdrawals of policyowner contract deposits     (187 028)  (163 041) (142 114)
Cash dividends to stockholders                    (11 153)   (10 894)  (10 393)
Disposition of treasury stock, net                    962        278       592

    NET CASH PROVIDED (USED)                      (21 798)    (3 958)   12 762

Increase (decrease) in cash                       (34 164)    46 350    (5 035)
Cash at beginning of year                          50 927      4 577     9 612

    CASH AT END OF YEAR                        $   16 763     50 927     4 577


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 its affiliates, is licensed to sell insurance products in 49
states and the District of Columbia.  The Company offers a diversified portfolio
of individual insurance, annuity and group products distributed through numerous
general  agencies.  In recent years, the Company's new business  activities have
been concentrated in interest sensitive and variable products.

Basis of Presentation
The  accompanying  consolidated  financial  statements have been prepared on the
basis of  generally  accepted  accounting  principles  (GAAP)  and  include  the
accounts of Kansas City Life Insurance Company and its subsidiaries, principally
Sunset  Life  Insurance  Company  of  America  (Sunset  Life)  and Old  American
Insurance  Company (Old American).  Significant  intercompany  transactions have
been eliminated in consolidation.  Certain  reclassifications  have been made to
prior  year  results to  conform  with the  current  year's  presentation.  GAAP
requires  management  to make certain  estimates  and  assumptions  which affect
amounts  reported in the financial  statements 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 are  recognized as
revenues  over the  terms  of the  policies.  Revenues  for  universal  life and
flexible  annuity products are amounts assessed against contract values for cost
of insurance,  policy administration and surrenders,  as well as amortization of
deferred front-end contract charges.

Future Policy Benefits
For traditional  life insurance  products,  reserves have been computed by a net
level premium  method based upon  estimates at the time of issue for  investment
yields,  mortality and  withdrawals.  These  estimates  include  provisions  for
experience less favorable than actually  expected.  Investment yield assumptions
for new issues are graded  down and range from 5.00 to 7.00  percent.  Mortality
assumptions  are based on standard  mortality  tables.  The  1965-70  Select and
Ultimate Basic Table is used for business issued since 1977.

Reserves  and claim  liabilities  for  accident  and  health  insurance  include
estimated  unpaid claims and claims  incurred but not reported.  For traditional
life and  accident  and health  insurance,  benefits  and claims are  charged to
expense in the period incurred.

Liabilities  for  universal  life  and  flexible  annuity   products   represent
accumulated contract values,  without reduction for potential surrender charges,
and deferred front-end contract charges which are amortized over the term of the
policies.  Benefits and claims are charged to expense in the period incurred net
of related accumulated contract values.  Interest on accumulated contract values
is credited to contracts as earned. Crediting rates for universal life insurance
and flexible  annuity  products  ranged from 3.85 percent to 7.25 percent during
1998 (4.75 percent to 6.50 percent  during 1997 and 4.75 percent to 6.75 percent
during 1996).

Withdrawal assumptions for all products are based on corporate experience.

Policy Acquisition Costs
The costs of acquiring new business,  principally  commissions,  certain  policy
issue and  underwriting  expenses  and certain  variable  agency  expenses,  are
deferred.  For  traditional  life  products,   deferred  acquisition  costs  are
amortized in proportion to premium  revenues over the  premium-paying  period of
related  policies,  using  assumptions  consistent  with those used in computing
benefit  reserves.  Acquisition  costs for universal  life and flexible  annuity
products are  amortized  over a period not  exceeding 30 years in  proportion to
estimated gross profits arising from interest spreads and mortality, expense and
surrender charges expected to be realized over the term of the contracts.

Value of Purchased Insurance in Force
The value of purchased insurance in force arising from the acquisition of a life
insurance  subsidiary and, in 1997, the acquisition of a life insurance block of
business is being  amortized in proportion to projected  future gross profits or
premium  revenues.  This  asset  was  increased  $76,533,000  in  1997  for  the
acquisition of a life insurance  block of business and $8,683,000  ($8,856,000 -
1997 and  $5,030,000  - 1996) for  accrual of interest  and reduced  $16,375,000
($14,962,000  - 1997 and $6,082,000 - 1996) for  amortization.  The increase for
accrual of interest was  calculated  using a 7.4 percent  interest  rate for the
life insurance  subsidiary  and, on the acquired  block, a 7.0 percent  interest
rate on the  traditional  life  portion and a 5.4 percent  rate on the  interest
sensitive  portion.  Through  1998,  total  accumulated  accrual of interest and
amortization equal $43,455,000 and $62,721,000,  respectively. The percentage of
the asset's current  carrying amount which will be amortized in each of the next
five years is 7.9 percent - 1999,  7.6 percent - 2000,  7.3 percent - 2001,  6.9
percent - 2002 and 6.3 percent - 2003.

Separate Accounts
These  accounts  arise from the sale of  variable  life  insurance  and  annuity
products.  Their assets are legally segregated and are not subject to the claims
which may  arise  from any other  business  of the  Company.  These  assets  are
reported at fair value since the underlying  investment risks are assumed by the
policyholders.  Therefore the related  liabilities are recorded at amounts equal
to the  underlying  assets.  Investment  income and gains or losses arising from
separate accounts accrue directly to the policyholders and are,  therefore,  not
included  in  investment  earnings  in  the  accompanying   consolidated  income
statement. Revenues to the Company from separate accounts consist principally of
contract  maintenance  charges,  administrative  fees  and  mortality  and  risk
charges.

Participating Policies
Participating  business at year end  approximates 16 percent of the consolidated
life  insurance  in force.  The  amount 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 allocate amounts to participating policyholders on the
basis of dividend  scales  contemplated  at the time the  policies  were issued.
Additional provisions have been made for policyholder dividends in excess of the
original scale which have been declared by the Board of Directors.

Investments
Securities  held to  maturity  and  short-term  investments  are  stated at cost
adjusted  for  amortization  of  premium  and  accrual of  discount.  Securities
available  for sale are  stated at fair  value.  Unrealized  gains and losses on
securities  available for sale are reduced by deferred  income taxes and related
adjustments in deferred acquisition costs, and are included in accumulated other
comprehensive income.

Mortgage  loans are stated at cost  adjusted  for  amortization  of premium  and
accrual of discount  less an allowance  for  possible  losses.  Foreclosed  real
estate  is  stated  at fair  value  at the  date of  foreclosure  (cost)  or net
realizable value,  whichever is lower. Other real estate investments are carried
at depreciated  cost. Real estate joint ventures are valued at cost adjusted for
the Company's equity in earnings since acquisition.  Policy loans are carried at
cost  less  payments  received.  Realized  gains  and  losses  on  disposals  of
investments,  determined by the specific  identification method, are included in
investment revenues.

Federal Income Taxes
Income taxes have been provided using the liability  method.  Under that method,
deferred tax assets and  liabilities  are  determined  based on the  differences
between their financial reporting and their tax bases and are measured using the
enacted tax rates.

Income Per Share
Due to the Company's capital  structure and lack of other  potentially  dilutive
securities, there is no difference between basic and diluted earnings per common
share for any of the years or periods  reported.  The weighted average number of
shares outstanding during the year was 6,197,052 shares (6,190,793 shares - 1997
and 6,188,489 shares - 1996).

Statutory Information and
  Stockholder Dividends Restriction
The Company's earnings, unassigned surplus (retained earnings) and stockholders'
equity, on the statutory basis used to report to regulatory authorities, follow.

                                          1998       1997      1996
Net gain (loss) from operations
    for the year                        $ 35 185   (21 214)    27 345

Net income (loss) for the year            36 152   (18 681)    25 574

Unassigned surplus
    at December 31                       257 853   246 717    284 417

Stockholders' equity
    at December 31                       209 246   197 147    234 570

The  statutory  loss reported in 1997 arose from the  acquisition  of a block of
business  as  discussed  in a  following  Note.  In  accordance  with  statutory
accounting  guidelines for coinsurance  transactions,  the  acquisition  reduced
statutory  earnings and  stockholders'  equity at the date of acquisition  $51.4
million, the purchase price paid less related tax benefits.

Stockholder dividends may not exceed statutory unassigned surplus. Additionally,
under  Missouri  law, the Company  must have the prior  approval of the Missouri
Director  of  Insurance  in order to pay a  dividend  exceeding  the  greater of
statutory  net gain from  operations  for the  preceding  year or 10  percent of
statutory  stockholders'  equity at the end of the preceding  year.  The maximum
payable in 1999 without  prior  approval is  $35,185,000.  The Company  believes
these  statutory  limitations  impose no practical  restrictions on its dividend
payment plans.

The  Company  is  required  to  deposit a defined  amount of assets  with  state
regulatory  authorities.   Such  assets  had  an  aggregate  carrying  value  of
$18,000,000 ($36,000,000 - 1997 and $36,000,000 - 1996).

Comprehensive Income
As of January 1, 1998, the Company  adopted  Financial  Accounting  Standard No.
130, "Reporting  Comprehensive  Income." This standard governs the reporting and
display of  comprehensive  income and its components;  however,  the adoption of
this new standard had no impact on net income or stockholders' equity.  Standard
No. 130 requires unrealized gains or losses on securities available for sale and
unfunded pension  liabilities,  which prior to adoption were reported separately
in stockholders'  equity, to be included in other comprehensive income, as shown
below. Prior year financial  statements have been reclassified to conform to the
requirements of this standard.

                                           Unrealized
                                             Gains on        Unfunded
                                          Available-for-      Pension
                                          Sale Securities    Liability    Total

1998:
Unrealized holding gains
  arising during the year                     $33 261                    33 261
Less:  Realized gains included
            in net income                       9 360                     9 360
Net unrealized gains                           23 901                    23 901
Increase in unfunded
  pension liability                                 -        (9 348)     (9 348)
Effect on deferred
  acquisition costs                              (680)                     (680)
Deferred income taxes                          (8 127)        3 272      (4 855)
Other comprehensive income                    $15 094        (6 076)      9 018

1997:
Unrealized holding gains
  arising during the year                     $63 486                    63 486
Less:  Realized gains included
            in net income                       8 318                     8 318
Net unrealized gains                           55 168                    55 168
Effect on deferred
  acquisition costs                            (3 652)                   (3 652)
Deferred income taxes                         (18 031)                  (18 031)
Other comprehensive income                    $33 485                    33 485


INVESTMENTS

Investment Revenues
Major categories of investment revenues are summarized as follows.

                                               1998         1997          1996
Investment income:
    Fixed maturities                         $154 213       154 393     150 421
    Equity securities                           6 583         7 288       5 503
    Mortgage loans                             26 024        23 984      23 127
    Real estate                                 9 587        10 350      13 237
    Policy loans                                8 098         7 296       6 372
    Short-term                                  4 832         3 612       2 353
    Other                                       3 948         3 132       2 222
                                              213 285       210 055     203 235
Less investment expenses                      (15 104)      (16 359)    (16 492)

                                             $198 181       193 696     186 743


                                               1998          1997         1996

Realized gains (losses):
    Fixed maturities                        $   8 052         4 778      (1 862)
    Equity securities                           1 360         3 702         961
    Mortgage loans                                  -             -       2 000
    Real estate                                 2 014         6 025       1 894
    Other                                           -             -          20
                                            $  11 426        14 505       3 013

Unrealized Gains and Losses
Unrealized gains (losses) on the Company's securities follow.

                                               1998          1997         1996

Available for sale:
  End of year                               $  83 627        59 726       4 558
  Effect on deferred
    acquisition costs                         (4 332)        (3 652)          -
  Deferred income taxes                      (27 753)       (19 626)     (1 595)

                                            $ 51 542         36 448       2 963
  Increase (decrease) in net unrealized gains during the year:
      Fixed maturities                      $ 18 701         33 209     (26 216)
      Equity securities                       (3 607)           276        (561)

                                            $ 15 094         33 485     (26 777)
Held to maturity:
  End of year                               $  8 011          5 834       7 609

  Increase (decrease) in
    net unrealized gains
    during the year                         $  2 177         (1 775)    (11 908)

Securities

The amortized  cost and fair value of  investments in securities at December 31,
1998, follow.


                                          Gross
                          Amortized     Unrealized       Fair
                             Cost     Gains   Losses     Value
Available for sale:
U.S.government bonds     $   45 079    1 747     381     46 445
Public utility bonds        294 016   15 850   1 946    307 920
Corporate bonds           1 321 368   66 176  13 151  1 374 393
Mortgage-backed bonds       278 657   10 942     618    288 981
Other bonds                  70 224    3 216     441     72 999
Redeemable preferred
  stocks                      3 631      121     128      3 624

Total fixed maturities    2 012 975   98 052  16 665  2 094 362
Equity securities            98 509    6 184   3 944    100 749

                         $2 111 484  104 236  20 609  2 195 111

Held to maturity:
Public utility bonds     $   25 325    1 934       7     27 252
Corporate bonds              87 302    6 267     511     93 058
Other bonds                   2 877      328       -      3 205

                            115 504    8 529     518    123 515

                         $2 226 988  112 765  21 127  2 318 626


The amortized  cost and fair value of  investments in securities at December 31,
1997, follow.


                                         Gross
                        Amortized      Unrealized        Fair
                        Cost           Gains   Losses    Value
Available for sale:
U.S. government bonds    $  135 182    3 166    297    138 051
Public utility bonds        281 781    6 956    662    288 075
Corporate bonds           1 130 938   34 827  3 315  1 162 450
Mortgage-backed bonds       315 621    9 416    375    324 662
Other bonds                  81 469    2 260    425     83 304
Redeemable preferred
  stocks                      7 750      261     38      7 974

Total fixed maturities    1 952 741   56 886  5 112  2 004 516
Equity securities           107 034    8 709    757    114 986

                          2 059 775   65 595  5 869  2 119 502

Held to maturity:
Public utility bonds     $   50 291    2 494     56     52 729
Corporate bonds              92 350    3 727    641     95 436
Other bonds                   3 020      310      -      3 330

                            145 661    6 531    697    151 495

                         $2 205 436   72 126  6 566  2 270 997


The Company holds one  non-income  producing  fixed maturity with a par value of
$5,000,000.

The  distribution of the fixed maturity  securities'  contractual  maturities at
December 31, 1998, follows.  However,  expected maturities may differ from these
contractual  maturities  since  borrowers  may have the  right to call or prepay
obligations.

                                                    Amortized         Fair
                                                       Cost          Value
Available for sale:
Due in one year or less                              $   63 900      64 657
Due after one year through five years                   450 887     461 883
Due after five years through ten years                  471 322     487 598
Due after ten years                                     748 209     791 243
Mortgage-backed bonds                                   278 657     288 981

                                                     $2 012 975   2 094 362

Held to maturity:
Due in one year or less                              $    8 528       8 700
Due after one year through five years                    50 820      53 615
Due after five years through ten years                   36 202      39 556
Due after ten years                                      19 954      21 644

                                                     $  115 504     123 515

Sales  of  investments  in  securities  available  for  sale,  excluding  normal
maturities and calls, follow.

                                               1998       1997      1996

Proceeds                                    $422 241    509 502    141 335
Gross realized gains                          12 512     11 597      1 400
Gross realized losses                          5 234      2 349      1 420


At December 31, 1998, the Company did not hold securities of any corporation and
its affiliates which exceeded 10 percent of stockholders' equity.

Kansas City Life employs no derivative financial instruments.

The Company  maintains a $60  million  bank line of credit  which may be used to
support  investment  strategies.  This line is unused at December 31, 1998,  and
will expire in April 1999.

Mortgage Loans
The Company  holds  non-income  producing  mortgage  loans  equaling  $1,004,000
($327,000 - 1997).  Mortgage  loans are  carried  net of a valuation  reserve of
$8,500,000 ($8,500,000 - 1997).

At  December  31,  1998  and  1997,   the  mortgage   portfolio  is  diversified
geographically and by property type as follows.

                                           1998                      1997
                                    Carrying    Fair         Carrying    Fair
                                    Amount      Value        Amount      Value
Geographic region:
  East north central             $ 31 068      32 373         26 937    27 421
  Mountain                         67 530      71 397         64 602    66 321
  Pacific                         106 982     112 461         91 963    94 366
  West south central               33 044      34 813         32 997    33 961
  West north central               69 594      73 157         55 320    56 485
  Other                            15 987      16 718          6 735     7 017
  Valuation reserve                (8 500)     (8 500)        (8 500)   (8 500)
                                 $315 705     332 419        270 054   277 071
 Property type:
   Industrial                    $209 752     220 474        170 199   174 278
   Retail                          22 847      24 301         29 532    30 531
   Office                          74 633      78 291         58 658    60 267
   Other                           16 973      17 853         20 165    20 495
   Valuation reserve               (8 500)     (8 500)        (8 500)   (8 500)
                                 $315 705     332 419        270 054   277 071

As of December 31,  1998,  the Company has  commitments  which expire in 1999 to
originate mortgage loans of $13,982,000.

Mortgage loans foreclosed upon and transferred to real estate investments during
the year equaled $1,181,000 ($3,189,000 - 1997 and $2,977,000 - 1996).

Mortgage  loans  acquired  in the sale of real  estate  assets  during  the year
totaled $2,025,000 ($4,299,000 - 1997 and $6,579,000 - 1996).

Real Estate
Detail concerning the Company's real estate investments follows.


                                                  1998            1997
Penntower office building, at cost:
    Land                                        $  1 106         1 106
    Building                                      18 244        18 068
    Less accumulated depreciation                (10 340)       (9 809)
Foreclosed real estate, at lower of
    cost or net realizable value                  10 946        13 362
Other investment properties, at cost:
    Land                                           4 493         3 214
    Buildings                                     32 848        24 216
    Less accumulated depreciation                (13 457)      (13 393)

                                                $ 43 840        36 764

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 properties from 10 to 35 years.  Foreclosed real estate is carried net
of a  valuation  allowance  of  $2,877,000  ($3,686,000  - 1997) to reflect  net
realizable value.

The Company held non-income  producing real estate equaling $6,099,000 ($820,000
- 1997).


PROPERTY AND EQUIPMENT

                                                  1998       1997

Land                                          $  1 029       1 029
Home office buildings                           22 995      23 149
Furniture and equipment                         30 238      27 502

                                                54 262      51 680
Less accumulated depreciation                  (31 826)    (28 052)

                                               $22 436      23 628

Property  and   equipment  are  stated  at  cost  and   depreciated   using  the
straight-line  method. Home office buildings are depreciated over 25 to 50 years
and furniture and equipment over 3 to 10 years, their estimated useful lives.


PENSIONS AND OTHER
POSTRETIREMENT BENEFITS

The  Company  has  pension  and  other  postretirement  benefit  plans  covering
substantially  all its  employees.  The  defined  benefits  pension  plan covers
employees  who were age 55 or over with at least 15 years of vested  service  at
December  31, 1997.  This plan's  benefits are based on years of service and the
employee's  compensation  during  the last five years of  employment.  All other
employees have a cash balance account consisting of credits to the account based
upon an employee's  years of service and  compensation,  and interest credits of
7.00 percent for 1998.  As disclosed  in the tables at right,  the  amendment to
change the plan to a cash balance plan in 1998  decreased the projected  benefit
obligation  $10,038,000.  The  postretirement  medical plans for the  employees,
full-time  agents,  and their  dependents are  contributory  with  contributions
adjusted annually. The Company pays these medical costs as incurred and the plan
incorporates  cost-sharing  features.  The postretirement life insurance plan is
noncontributory  with level  annual  payments  over the  participants'  expected
service periods.  The plan covers only those employees with at least one year of
service as of December 31, 1997.  The benefits in this plan are frozen using the
employees' years of service and compensation as of December 31, 1997. The tables
at right  outline the plans'  funded  status and their  impact on the  Company's
financial statements.

                                           Pension Benefits       Other Benefits
                                          1998      1997         1998      1997

Accumulated benefit obligation          $107 488   102 846        -          -

Change in plan assets:
Fair value of plan assets at
  beginning of year                     $ 95 899    85 241      1 634    1 501
Return on plan assets                     10 988     9 752         86       83
Company contributions                      3 000     4 967          -      104
Benefits paid                             (7 018)   (4 061)      (106)     (54)

Fair value of plan assets at end of year$102 869    95 899      1 614    1 634

Change in projected benefit obligation:
Benefit obligation at beginning of year $119 651   100 572     15 485   13 379
Service cost                               2 746     3 150        615      560
Interest cost                              7 650     7 823      1 193    1 014
Plan amendments                          (10 038)        -          -        -
Net loss from past experience                637    12 276      1 991    1 083
Benefits paid                            (10 099)   (4 170)      (476)    (551)

  Benefit obligation at end of year     $110 547   119 651     18 808   15 485

Plan underfunding                       $ (7 678)  (23 752)   (17 194) (13 851)
Unrecognized net loss                     22 488    25 452      3 653    1 734
Unrecognized prior service cost           (9 257)       12          -        -
Unrecognized net transition asset           (824)   (1 030)         -        -

  Prepaid (accrued) benefit cost        $  4 729       682    (13 541) (12 117)

Amounts recognized in the consolidated balance sheet:
Prepaid (accrued) benefit cost          $  4 729       682    (13 541) (12 117)
Minimum pension liability                 (9 348)        -          -        -

  Net amount recognized                 $ (4 619)      682    (13 541) (12 117)

Weighted average assumptions:
Discount rate                               7.00%     7.25       7.00     7.25
Expected return on plan assets              9.00      9.00       5.50     5.50
Rate 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 below demonstrates.

                                               One Percentage Point
                                             Change in the Growth Rate
                                              Increase        Decrease

Service and interest cost components           $  401       (326)
Postretirement benefit obligation               3 172     (2 684)


The components of the net periodic benefits cost follow.
                                   Pension Benefits           Other Benefits
                                   1998    1997    1996     1998    1997   1996

Service cost                  $    2 746   3 150   3 369     615     560    536
Interest cost                      7 650   7 823   6 647   1 194   1 014    869
Expected return on plan assets    (8 539) (7 776) (7 557)    (90)    (85)   (75)
Amortization of:
  Unrecognized net (gain) loss     1 152     582     263      76      (5)     -
  Unrecognized prior service cost   (769)      2       2       -       -      -
  Unrecognized net transition asset (206)   (206)   (206)      -       -      -

Net periodic benefits cost       $ 2 034   3 575   2 518   1 795   1 484  1 330


Non-contributory  defined  contribution  retirement plans for general agents and
eligible  sales agents  provide  supplemental  payments based upon earned agency
first-year individual life and annuity commissions. Contributions to these plans
were $134,000 ($133,000 - 1997 and $174,000 - 1996). A non-contributory deferred
compensation plan for eligible agents based upon earned  first-year  commissions
is also offered.  Contributions to this plan were $724,000  ($265,000 - 1997 and
$318,000 - 1996).

Savings plans for eligible employees and agents match employee  contributions up
to 6 percent of salary and agent  contributions  up to 2.5 percent of prior year
paid commissions.  Contributions to the plan were $1,485,000  ($2,102,000 - 1997
and  $2,082,000  - 1996).  Effective  in 1998,  the  Company may  contribute  an
additional  profit  sharing  amount up to 4 percent  of  salary  depending  upon
corporate profits. No profit sharing contribution was made in 1998.

A non-contributory  trusteed employee stock ownership plan covers  substantially
all salaried employees. The Company has made no contributions to this plan since
1992.


SEGMENT INFORMATION

                                  Kansas City Life       Sunset   Old
                                  Individual   Group    Life    American   Total
1998:
Revenues from external customers   $  112 898  52 537   28 794  80 001   274 230
Investment revenues                   151 045   1 146   32 040  13 950   198 181
Segment income (loss)                  27 918    (985)   8 954   5 198    41 085
Other significant noncash items:
  Increase in policy reserves          57 581     535   16 269  10 042    84 427
  Amortization of deferred
    acquisition costs                  16 861       -    8 323  11 017    36 201
  Amortization of the value of
    purchased insurance in force        4 660       -        -   2 925     7 585
Income tax expense                     12 997    (422)   4 314   2 548    19 437

Segment assets                      2 627 568  16 215  538 254 395 377 3 577 414
Expenditures for other long-lived assets2 658     259       97      69     3 083


1997:
Revenues from external customers   $   90 759  53 698   28 269  81 967   254 693
Investment revenues                   147 125   1 216   32 288  13 067   193 696
Segment income (loss)                  24 704    (493)   8 259   2 963    35 433
Other significant noncash items:
  Increase in policy reserves          55 924     202   16 768  13 910    86 804
  Amortization of deferred
    acquisition costs                  15 138       -    8 026  12 548    35 712
  Amortization of the value of
    purchased insurance in force        2 211       -        -   2 683     4 894
Income tax expense                     12 735    (212)   3 904   1 335    17 762

Segment assets                      2 533 546  16 828  517 423 371 655 3 439 452
Expenditures for other long-lived assets2 326     473       60      13     2 872


1996:
Revenues from external customers   $   77 861  42 547   27 260  81 693   229 361
Investment revenues                   141 333   1 215   32 483  11 712   186 743
Segment income (loss)                  25 330    (806)   9 440   6 395    40 359
Other significant noncash items:
  Increase in policy reserves          51 670     678   17 819  15 447    85 614
  Amortization of deferred
    acquisition costs                  14 618       -    6 292   9 176    30 086
  Amortization of the value of
    purchased insurance in force            -       -        -     946       946
Income tax expense                     10 330    (434)   3 903   3 211    17 010

Expenditures for other long-lived assets  175     148      171      33       527

Enterprise-Wide Disclosures
                                                       1998        1997    1996
Revenues from external customers by line of business:
  Variable life insurance and annuities             $  6 928     2 062       312
  Interest sensitive products                        101 680    91 651    78 443
  Traditional individual insurance products          103 171   101 332   100 298
  Group life and disability products                  47 780    49 650    40 540
  Group ASO services                                   4 716     4 048     2 007
  Other                                                9 955     5 950     7 761
      Total                                         $274 230   254 693   229 361


In 1998 the Company adopted Financial Accounting Standard No. 131,  "Disclosures
about Segments of an Enterprise  and Related  Information."  Company  operations
have been classified and summarized  into the four reportable  segments at left.
The segments,  while generally  classified  along Company lines,  are based upon
distribution method, product portfolio and target market. The Parent Company was
divided into two segments.  The Kansas City Life-Individual  segment consists of
sales  of  variable  life  and  annuities,   interest   sensitive  products  and
traditional life insurance  products by a career general agency sales force. The
block acquired in 1997 is included in this segment.  The Kansas City  Life-Group
segment   consists  of  sales  of  group  life  and   disability   products  and
administrative  services only (ASO) by the Company's career general agency sales
force and appointed group agents.  The Sunset Life segment  consists of sales of
interest  sensitive  and  traditional  products  by personal  producing  general
agents.  The Old American  segment markets whole life final expense  products to
seniors through a general agency sales force.

Separate  investment  portfolios  are  maintained  for  each  of the  companies.
However,  investments  are  allocated to the group  segment  based upon its cash
flows and its investment revenue is modeled using the year of investment method.
Operating  expenses  are  allocated  to the segments  based upon  internal  cost
studies which are  consistent  with industry cost  methodologies.  The totals at
left agree to the consolidated  financial statements.  Intersegment revenues are
not material and there is no interest  expense.  The Company  operates solely in
the United States and no individual  customer accounts for 10 percent or more of
the Company's revenue.

REINSURANCE

                                               1998       1997     1996

Life insurance in force (in millions):
    Direct                                  $ 23 261    22 800    22 121
    Ceded                                     (4 488)   (3 375)   (2 742)
    Assumed                                    3 380     3 796        28

        Net                                 $ 22 153    23 221    19 407

Premiums:
Life insurance:
    Direct                                  $128 584   128 491   127 150
    Ceded                                    (26 748)  (26 262)  (24 380)
    Assumed                                    6 674     3 822       493

        Net                                 $108 510   106 051   103 263

Accident and health:
    Direct                                  $ 54 022    55 022    48 694
    Ceded                                    (11 581)  (10 091)  (11 370)
    Assumed                                        -         -       251

        Net                                 $ 42 441    44 931    37 575


Contract charges arise generally from directly issued business. However contract
charges  also arise from a block of business  assumed  during 1997 as  described
below.  Ceded  benefit  recoveries  were  $57,048,000  ($39,483,000  - 1997  and
$37,829,000 - 1996).

Old American has two coinsurance  agreements.  One agreement  reinsures  certain
whole life  policies  issued by Old  American  prior to December 1, 1986.  As of
December 31, 1998, these policies had a face value of $125,017,000.  The reserve
for  future  policy   benefits  ceded  under  this  agreement  was   $49,041,000
($51,003,000 - 1997). The other agreement,  entered into in 1998,  reinsures the
home health care policies.

In 1997,  the  Company  acquired  a block  of  traditional  life  and  universal
life-type  products.  At December 31,  1998,  the block had $3.4 billion of life
insurance in force ($3.8 billion - 1997).  During 1998, the block generated life
insurance premiums of $6,656,000 ($3,096,000 - 1997).

The maximum  retention on any one life is $350,000  for ordinary  life plans and
$100,000  for group  coverage.  A  contingent  liability  exists with respect to
reinsurance,  which may become a liability of the Company in the unlikely  event
that  the  reinsurers  should  be  unable  to  meet  obligations  assumed  under
reinsurance contracts.

FAIR VALUE OF
FINANCIAL INSTRUMENTS


The  carrying  amounts  for cash,  short-term  investments  and policy  loans as
reported in the accompanying  balance sheet approximate  their fair values.  The
fair values for securities are based on quoted market prices,  where  available.
For those securities not actively traded, fair values are estimated using values
obtained  from  independent   pricing  services  or,  in  the  case  of  private
placements,  are  estimated by  discounting  expected  future cash flows using a
current market rate applicable to the yield,  credit quality and maturity of the
investments.  Fair values for mortgage loans are based upon discounted cash flow
analyses using an interest 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 accumulated contract values for flexible annuities and
with  other  policyholder   funds  for  supplementary   contracts  without  life
contingencies, are estimated to be their cash surrender values.

Fair  values  for  the  Company's  insurance  contracts  other  than  investment
contracts  are not  required  to be  disclosed.  However,  the  fair  values  of
liabilities  under all insurance  contracts are taken into  consideration in the
Company's overall  management of interest rate risk, which minimizes exposure to
changing  interest  rates  through the matching of  investment  maturities  with
amounts due under insurance contracts.

The carrying amounts and fair values of the financial instruments follow.

                                           1998                     1997
                                Carrying        Fair       Carrying      Fair
                                 Amount        Value        Amount       Value
Investments:
  Securities available
    for sale                   $2 195 111   2 195 111    2 119 502   2 119 502
  Securities held
    to maturity                   115 504     123 515      145 661     151 495
  Mortgage loans                  315 705     332 419      270 054     277 071
Liabilities:
  Individual and
    group annuities              $793 068     767 537      830 495     802 461
  Supplementary
    contracts without
    life contingencies             21 899      21 899       21 526      21 526

The Investments Note provides further details regarding the investments above.

FEDERAL INCOME TAXES

A  reconciliation  of the  Federal  income  tax  rate  and the  actual  tax rate
experienced is shown below.

                                                  1998      1997     1996

Federal income tax rate                             35 %    35      35
Special tax credits                                 (6)     (6)     (5)
Other permanent differences                          -      (1)     (1)

Actual income tax rate                              29 %    28      29


The tax effects of temporary  differences that give rise to significant portions
of the deferred tax assets and liabilities are presented below.

                                                    1998          1997
Deferred tax assets:
  Future policy benefits                          $ 51 205       53 923
  Employee retirement benefits                      18 271       13 104
  Other                                              3 036        2 882
Gross deferred tax assets                           72 512       69 909

Deferred tax liabilities:
  Capitalization of policy acquisition
    costs, net of amortization                      42 487       40 844
  Basis differences between tax and
    GAAP accounting for investments                 35 104       28 080
  Property and equipment, net                        1 792        1 704
  Value of insurance in force                       36 070       36 551
  Other                                                798        2 647
Gross deferred tax liabilities                     116 251      109 826

  Net deferred tax liability                      $ 43 739       39 917

Federal income taxes paid for the year were $20,164,000  ($14,335,000 - 1997 and
$25,332,000 - 1996).

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

Income taxed on a current basis is  accumulated in  "shareholders'  surplus" and
can be distributed to stockholders  without tax to the Company.  At December 31,
1998,  this  shareholders'  surplus  was  $373,841,000  for  Kansas  City  Life,
$80,914,000 for Sunset Life and $49,116,000 for Old American.

QUARTERLY CONSOLIDATED
   FINANCIAL DATA (unaudited)

                                  First       Second      Third       Fourth
1998:
Total revenues                  $117 651     124 846     125 706    115 634

Operating income                $  8 098      11 492      12 930      8 565
Realized gains, net                1 643       1 582       2 679      1 523

Net income                      $  9 741      13 074      15 609     10 088

Per common share:
  Operating income              $   1.31        1.85        2.09       1.38
  Realized gains, net                .26         .26         .43        .25

Net income                      $   1.57        2.11        2.52       1.63

1997:
Total revenues                  $108 379     108 836     124 932    120 747

Operating income                $ 10 299       8 548       7 639      8 946
Realized gains net                 1 835         957       4 119      2 517

Net income                      $ 12 134       9 505      11 758     11 463

Per common share:
  Operating income              $   1.66        1.39        1.23       1.44
  Realized gains net                 .30         .15         .67        .41

   Net income                   $   1.96        1.54        1.90       1.85


CONTINGENT LIABILITIES

The Company and certain of its subsidiaries are defendants in lawsuits involving
claims and disputes with  policyholders that may include claims seeking punitive
damages.  Some of these lawsuits  arise in  jurisdictions  that permit  punitive
damages  disproportionate to the actual damages alleged.  Although no assurances
can be given and no determinations can be made at this time as to the outcome of
any particular lawsuit or proceeding,  the Company and its subsidiaries  believe
that there are  meritorious  defenses  for these claims and are  defending  them
vigorously.  Management believes that the amounts that would ultimately be paid,
if any, would have no material effect on the Company's  consolidated  results of
operations and financial position.

SUBSEQUENT EVENT

The Board  authorized a two-for-one  stock split in January 1999.  However,  the
stock split must be  approved by the  stockholders  at their  annual  meeting on
April 22, 1999.


MANAGEMENT'S REPORT

To Our Stockholders

     Management prepared the preceding consolidated financial statements and all
other  financial  information  included in this Annual Report and is responsible
for its integrity,  consistency and objectivity.  In preparing these statements,
management  necessarily  made  certain  estimates  and  judgments  and  selected
accounting   principles  in  conformity  with  generally   accepted   accounting
principles appropriate in the circumstances.
     The  Company  maintains  a  system  of  internal  accounting  controls  and
procedures to provide  reasonable  assurance,  at an appropriate  cost, that its
assets are protected and that its financial transactions are properly authorized
and  recorded.  Qualified  personnel in the Company  maintain and monitor  these
internal controls on an ongoing basis.
     The Audit  Committee of the Board of Directors,  composed solely of outside
directors,  meets  annually  and, as required,  with the  independent  auditors,
management and the internal  auditors.  Each has free and separate access to the
committee.  The committee reviews audit procedures,  scope and findings, and the
adequacy of the Company's financial reporting.
     The  independent  auditors,  Ernst & Young LLP, are elected by the Board of
Directors to audit the financial statements and render an opinion thereon.


                                                /s/Richard L. Finn
                                                Richard L. Finn
                                                Senior Vice President, Finance


REPORT 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 (the Company) as of December 31, 1998 and 1997, and the
related consolidated  statements of income,  stockholders' equity and cash flows
for each of the  three  years in the  period  ended  December  31,  1998.  These
consolidated  financial  statements  are  the  responsibility  of the  Company's
management.  Our  responsibility  is to express  an  opinion on these  financial
statements based on our audits.
     We conducted  our audits in accordance  with  generally  accepted  auditing
standards.  Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the 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 the  accounting  principles  used and  significant  estimates  made by
management,  as well as evaluating the overall financial 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 material respects, the consolidated financial position of
Kansas  City Life  Insurance  Company at  December  31,  1998 and 1997,  and the
consolidated  results of its operations and its cash flows for each of the three
years in the period ended  December  31,  1998,  in  conformity  with  generally
accepted accounting principles.



                                             /s/Ernst & Young LLP
                                             Ernst & Young LLP

Kansas City, Missouri
January 25, 1999



STOCKHOLDER INFORMATION

CORPORATE HEADQUARTERS
     Kansas City Life Insurance Company
     3520 Broadway
     Post Office Box 419139
     Kansas City, Missouri 64141-6139
     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
22, 1999, at Kansas City Life's corporate headquarters.


TRANSFER AGENT
     Cheryl Keefer, Assistant Secretary
     Kansas City Life Insurance Company
     Post Office Box 419139
     Kansas City, Missouri 64141-6139


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 8, 1999,  Kansas City Life had  approximately  738  security
     holders, including individual participants in security position listings.


STOCK AND DIVIDEND INFORMATION
        Stock Quotation Symbol
       Over-the-Counter--KCLI

                              Bid                  Dividend
                              High       Low         Paid
                                      (per share)
     1998:
     First Quarter           $97.50     82.00        $ .45
     Second Quarter           94.88     83.25          .45
     Third Quarter            95.50     69.00          .45
     Fourth Quarter           85.50     78.00          .45
                                                     $1.80

     1997:
     First Quarter           $68.25     63.50        $ .44
     Second Quarter           79.75     66.00          .44
     Third Quarter            84.00     74.00          .44
     Fourth Quarter           96.50     80.25          .44
                                                     $1.76

     A quarterly dividend of $.48 per share was paid February 22, 1999.

     Over-the-counter  market  quotations  are  compiled  according  to  Company
     records and may reflect  inter-dealer prices,  without markup,  markdown or
     commission and may not necessarily represent actual transactions.