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UNITED STATES            SECURITIES AND EXCHANGE COMMISSION            Washington, D.C. 20549

**FORM            10-Q**
|                                                  |                                                                                                                                                     |
|-------------------------------------------------------|----------------------------------------------------------------------------------------------------------------------------------------------------------|
| x                                                     | QUARTERLY REPORT                        PURSUANT TO SECTION 13 or 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 [FEE                        REQUIRED]     |
|                                                  | For the Quarterly                        Period ended June 30, 2007 or                                                                                   |
| o                                                     | TRANSITION REPORT                        PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 [NO                        FEE REQUIRED] |
|                                                  | For the Transition                        Period from ________ to ________                                                                               |
| Commission File                        Number 2-40764 |
|                                                                          |
|-------------------------------------------------------------------------------|
| **KANSAS CITY LIFE                        INSURANCE COMPANY**                 |
|                                                                               |
| (Exact Name of                        Registrant as Specified in its Charter) |
|   |                                                            |   |                                          |   |
|--------|-----------------------------------------------------------------|--------|-----------------------------------------------|--------|
|   | Missouri                                                        |   | 44-0308260                                    |   |
|   |                                                                 |   |                                               |   |
|   | (State or Other                        Jurisdiction of          |   | (I.R.S.                        Employer       |   |
|   | Incorporation or                        Organization)           |   | Identification                        Number) |   |
|   |                                                            |   |                                          |   |
|   | 3520                        Broadway, Kansas City, Missouri     |   | 64111-2565                                    |   |
|   |                                                                 |   |                                               |   |
|   | (Address of Principal                        Executive Offices) |   | (Zip                        Code)             |   |

Registrant’s Telephone            Number, including Area Code: 816-753-7000
|                                                                                 |
|--------------------------------------------------------------------------------------|
| Not                        Applicable                                                |
|                                                                                      |
| (Former name or former                        address, if changed since last report) |

          Indicate            by check mark whether the Registrant (1) has filed all reports required to be filed by            Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12            months (or for such shorter period that the Registrant was required to file such            reports), and (2) has been subject to such filing requirements for the past 90            days.

Yesx                      Noo

          Indicate            by check mark whether the Registrant is a large accelerated filer, an accelerated            filer, or a non-accelerated filer, See definition of “accelerated filer and large            accelerated filer” in Rule 12b-2 of the Exchange Act. (Check one):
|                                             |                                       |                                           |
|--------------------------------------------------|--------------------------------------------|------------------------------------------------|
| Large                        accelerated filer o | Accelerated filer                        x | Non-accelerated                        filer o |

          Indicate            by check mark whether the Registrant is a shell company (as defined in Rule 12b-2 of            the Exchange Act).

Yes            o                      No x

Indicate the number of shares            outstanding of each of the issuer’s classes of common stock, as of the latest            practicable date.
|                                                 |   |                                               |
|------------------------------------------------------|--------|----------------------------------------------------|
| *Class*                                              |   | *Outstanding June 30,                        2007* |
|                                                      |   |                                                    |
| Common Stock, $1.25 par                        value |   | 11,849,547                        shares           |

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**KANSAS CITY            LIFE INSURANCE COMPANY            TABLE OF CONTENTS**

|                            |                                                                                                                                      |   |
|---------------------------------|-------------------------------------------------------------------------------------------------------------------------------------------|--------|
| Part                        I.  | Financial                        Information                                                                                              | 3      |
|                            |                                                                                                                                      |   |
| Item                        1.  | Financial                        Statements (Unaudited)                                                                                   | 3      |
|                            |                                                                                                                                      |   |
|                            | Consolidated                        Balance Sheets                                                                                        | 3      |
|                            |                                                                                                                                      |   |
|                            | Consolidated                        Statements of Income                                                                                  | 4      |
|                            |                                                                                                                                      |   |
|                            | Consolidated                        Statements of Cash Flows                                                                              | 5      |
|                            |                                                                                                                                      |   |
|                            | Notes                        to Consolidated Financial Statements                                                                         | 6      |
|                            |                                                                                                                                      |   |
| Item                        2.  | Management’s                        Discussion and Analysis of Financial Condition and Results of                        Operations | 13     |
|                            |                                                                                                                                      |   |
| Item                        3.  | Quantitative                        and Qualitative Disclosures About Market Risk                                                         | 26     |
|                            |                                                                                                                                      |   |
| Item                        4.  | Controls                        and Procedures                                                                                            | 26     |
|                            |                                                                                                                                      |   |
| Part                        II. | Other                        Information                                                                                                  | 27     |
|                            |                                                                                                                                      |   |
| Item                        1.  | Legal                        Proceedings                                                                                                  | 27     |
|                            |                                                                                                                                      |   |
| Item                        5.  | Other                        Information                                                                                                  | 28     |
|                            |                                                                                                                                      |   |
| Item                        6.  | Exhibits                                                                                                                                  | 30     |
|                            |                                                                                                                                      |   |
| Signatures                      | 31                                                                                                                                        |

**-2-**

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**Part I            Financial InformationItem 1. Financial Statements (Unaudited)**

**KANSAS CITY            LIFE INSURANCE COMPANYCONSOLIDATED BALANCE SHEETS**            (amounts in thousands, except share data)

|                                                                                                                                         |   |                                                       |      |                                    |   |      |   |
|----------------------------------------------------------------------------------------------------------------------------------------------|--------|------------------------------------------------------------|-----------|-----------------------------------------|--------|-----------|--------|
|                                                                                                                                         |   | June                        30                        2007 |      | December 31                        2006 |   |
|                                                                                                                                         |   |                                                            |      |                                         |   |
|                                                                                                                                         |   | (Unaudited)                                                |      |                                    |   |
|                                                                                                                                         |   |                                                            |      |                                    |   |
| **ASSETS**                                                                                                                                   |   |                                                       |      |                                    |   |      |   |
| Investments:                                                                                                                                 |   |                                                       |      |                                    |   |      |   |
| Fixed maturity                        securities available for sale, at fair value                                                           |   | $                                                          | 2,634,073 |                                    | $      | 2,719,439 |   |
| Equity securities                        available for sale, at fair value                                                                   |   |                                                       | 51,076    |                                    |   | 52,351    |   |
| Mortgage                        loans                                                                                                        |   |                                                       | 462,414   |                                    |   | 472,019   |   |
| Real estate                                                                                                                                  |   |                                                       | 96,989    |                                    |   | 109,525   |   |
| Policy loans                                                                                                                                 |   |                                                       | 93,839    |                                    |   | 96,218    |   |
| Short-term                        investments                                                                                                |   |                                                       | 20,062    |                                    |   | 44,219    |   |
|                                                                                                                                         |   |                                                            |           |                                    |        |           |   |
| Total                        investments                                                                                                     |   |                                                       | 3,358,453 |                                    |   | 3,493,771 |   |
|                                                                                                                                         |   |                                                       |      |                                    |   |      |   |
| Cash                                                                                                                                         |   |                                                       | 14,559    |                                    |   | 3,908     |   |
| Accrued investment                        income                                                                                             |   |                                                       | 38,092    |                                    |   | 38,661    |   |
| Deferred acquisition                        costs                                                                                            |   |                                                       | 222,249   |                                    |   | 220,595   |   |
| Value of business                        acquired                                                                                            |   |                                                       | 77,986    |                                    |   | 82,769    |   |
| Reinsurance                        receivables                                                                                               |   |                                                       | 160,426   |                                    |   | 159,513   |   |
| Property and                        equipment                                                                                                |   |                                                       | 28,404    |                                    |   | 29,364    |   |
| Other assets                                                                                                                                 |   |                                                       | 31,700    |                                    |   | 31,092    |   |
| Separate account                        assets                                                                                               |   |                                                       | 422,921   |                                    |   | 400,749   |   |
|                                                                                                                                         |   |                                                            |           |                                    |        |           |   |
| Total assets                                                                                                                                 |   | $                                                          | 4,354,790 |                                    | $      | 4,460,422 |   |
|                                                                                                                                         |   |                                                            |           |                                    |        |           |   |
| **LIABILITIES**                                                                                                                              |   |                                                       |      |                                    |   |      |   |
| Future policy                        benefits                                                                                                |   | $                                                          | 850,386   |                                    | $      | 854,447   |   |
| Policyholder account                        balances                                                                                         |   |                                                       | 2,132,214 |                                    |   | 2,191,105 |   |
| Policy and contract                        claims                                                                                            |   |                                                       | 35,776    |                                    |   | 32,188    |   |
| Other policyholder                        funds                                                                                              |   |                                                       | 104,597   |                                    |   | 87,094    |   |
| Notes                        payable                                                                                                         |   |                                                       | 12,700    |                                    |   | 14,700    |   |
| Income taxes                                                                                                                                 |   |                                                       | 24,769    |                                    |   | 35,319    |   |
| Other                        liabilities                                                                                                     |   |                                                       | 118,516   |                                    |   | 160,516   |   |
| Separate account                        liabilities                                                                                          |   |                                                       | 422,921   |                                    |   | 400,749   |   |
|                                                                                                                                         |   |                                                            |           |                                    |        |           |   |
| Total                        liabilities                                                                                                     |   |                                                       | 3,701,879 |                                    |   | 3,776,118 |   |
|                                                                                                                                         |   |                                                            |           |                                    |        |           |   |
| **STOCKHOLDERS’                        EQUITY**                                                                                        |   |                                                       |      |                                    |   |      |   |
| Common stock, par value                        $1.25 per share Authorized 36,000,000 shares, issued 18,496,680                        shares |   |                                                       | 23,121    |                                    |   | 23,121    |   |
| Additional paid in                        capital                                                                                            |   |                                                       | 28,060    |                                    |   | 25,852    |   |
| Retained                        earnings                                                                                                     |   |                                                       | 770,979   |                                    |   | 780,892   |   |
| Accumulated other                        comprehensive loss                                                                                  |   |                                                       | (46,261   | )                                       |   | (25,118   | )      |
| Less treasury stock, at                        cost (2007 - 6,647,133 shares; 2006 - 6,641,183 shares)                                       |   |                                                       | (122,988  | )                                       |   | (120,443  | )      |
|                                                                                                                                         |   |                                                            |           |                                    |        |           |   |
| Total                        stockholders’ equity                                                                                      |   |                                                       | 652,911   |                                    |   | 684,304   |   |
|                                                                                                                                         |   |                                                            |           |                                    |        |           |   |
|                                                                                                                                         |   |                                                       |      |                                    |   |      |   |
| Total liabilities and                        stockholders’ equity                                                                      |   | $                                                          | 4,354,790 |                                    | $      | 4,460,422 |   |
|                                                                                                                                         |   |                                                            |           |                                    |        |           |   |

*See            accompanying Notes to Consolidated Financial Statements (Unaudited).*

**-3-**

----

**KANSAS CITY            LIFE INSURANCE COMPANYCONSOLIDATED STATEMENTS OF INCOME (Unaudited)**            (amounts in thousands, except share data)

|                                                                                             |   |                                         |    |                                                                   |   |    |   |   |    |   |   |    |   |
|--------------------------------------------------------------------------------------------------|--------|----------------------------------------------|---------|------------------------------------------------------------------------|--------|---------|--------|--------|---------|--------|--------|---------|--------|
|                                                                                             |   | Quarter ended                        June 30 |    | Six                        Months ended                        June 30 |   |
|                                                                                             |   |                                              |    |                                                                        |   |
|                                                                                             |   | 2007                                         |    | 2006                                                                   |   | 2007    |   | 2006   |    |
|                                                                                             |   |                                              |    |                                                                        |   |         |   |        |    |
| **REVENUES**                                                                                     |   |                                         |    |                                                                   |   |    |   |   |    |   |   |    |   |
| Insurance                        revenues:                                                       |   |                                         |    |                                                                   |   |    |   |   |    |   |   |    |   |
| Premiums                                                                                         |   | $                                            | 45,242  |                                                                   | $      | 44,374  |   | $      | 87,890  |   | $      | 87,994  |   |
| Contract                        charges                                                          |   |                                         | 26,477  |                                                                   |   | 28,520  |   |   | 55,180  |   |   | 57,853  |   |
| Reinsurance                        ceded                                                         |   |                                         | (14,300 | )                                                                      |   | (14,080 | )      |   | (27,244 | )      |   | (27,225 | )      |
|                                                                                             |   |                                              |         |                                                                   |        |         |   |        |         |   |        |         |   |
| Total insurance                        revenues                                                  |   |                                         | 57,419  |                                                                   |   | 58,814  |   |   | 115,826 |   |   | 118,622 |   |
| Investment                        revenues:                                                      |   |                                         |    |                                                                   |   |    |   |   |    |   |   |    |   |
| Net investment                        income                                                     |   |                                         | 48,671  |                                                                   |   | 48,823  |   |   | 95,755  |   |   | 97,736  |   |
| Realized investment                        gains                                                 |   |                                         | 38      |                                                                   |   | 1,905   |   |   | 5,162   |   |   | 1,640   |   |
| Other                        revenues                                                            |   |                                         | 3,757   |                                                                   |   | 2,977   |   |   | 6,174   |   |   | 5,505   |   |
|                                                                                             |   |                                              |         |                                                                   |        |         |   |        |         |   |        |         |   |
| Total                        revenues                                                            |   |                                         | 109,885 |                                                                   |   | 112,519 |   |   | 222,917 |   |   | 223,503 |   |
|                                                                                             |   |                                              |         |                                                                   |        |         |   |        |         |   |        |         |   |
|                                                                                             |   |                                         |    |                                                                   |   |    |   |   |    |   |   |    |   |
| **BENEFITS AND                        EXPENSES**                                                 |   |                                         |    |                                                                   |   |    |   |   |    |   |   |    |   |
| Policyholder                        benefits                                                     |   |                                         | 40,994  |                                                                   |   | 41,532  |   |   | 84,991  |   |   | 84,016  |   |
| Interest credited to                        policyholder account balances                        |   |                                         | 22,732  |                                                                   |   | 23,656  |   |   | 45,505  |   |   | 47,214  |   |
| Amortization of                        deferred acquisition costs and value of business acquired |   |                                         | 6,407   |                                                                   |   | 10,867  |   |   | 17,598  |   |   | 22,316  |   |
| Operating                        expenses                                                        |   |                                         | 22,416  |                                                                   |   | 22,250  |   |   | 45,126  |   |   | 45,794  |   |
|                                                                                             |   |                                              |         |                                                                   |        |         |   |        |         |   |        |         |   |
| Total benefits and                        expenses                                               |   |                                         | 92,549  |                                                                   |   | 98,305  |   |   | 193,220 |   |   | 199,340 |   |
|                                                                                             |   |                                              |         |                                                                   |        |         |   |        |         |   |        |         |   |
|                                                                                             |   |                                         |    |                                                                   |   |    |   |   |    |   |   |    |   |
| Income before income                        tax expense                                          |   |                                         | 17,336  |                                                                   |   | 14,214  |   |   | 29,697  |   |   | 24,163  |   |
|                                                                                             |   |                                         |    |                                                                   |   |    |   |   |    |   |   |    |   |
| Income tax                        expense                                                        |   |                                         | 5,524   |                                                                   |   | 4,105   |   |   | 9,579   |   |   | 6,865   |   |
|                                                                                             |   |                                              |         |                                                                   |        |         |   |        |         |   |        |         |   |
|                                                                                             |   |                                         |    |                                                                   |   |    |   |   |    |   |   |    |   |
| **NET                        INCOME**                                                            |   | $                                            | 11,812  |                                                                   | $      | 10,109  |   | $      | 20,118  |   | $      | 17,298  |   |
|                                                                                             |   |                                              |         |                                                                   |        |         |   |        |         |   |        |         |   |
|                                                                                             |   |                                         |    |                                                                   |   |    |   |   |    |   |   |    |   |
| Basic and diluted                        earnings per share:                                     |   |                                         |    |                                                                   |   |    |   |   |    |   |   |    |   |
| Net income                                                                                       |   | $                                            | 1.00    |                                                                   | $      | 0.85    |   | $      | 1.70    |   | $      | 1.45    |   |
|                                                                                             |   |                                              |         |                                                                   |        |         |   |        |         |   |        |         |   |

*See            accompanying Notes to Consolidated Financial Statements (Unaudited).*

**-4-**

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**KANSAS CITY            LIFE INSURANCE COMPANYCONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)**            (amounts in thousands)

|                                                                     |   |                                                                   |     |   |   |     |   |
|--------------------------------------------------------------------------|--------|------------------------------------------------------------------------|----------|--------|--------|----------|--------|
|                                                                     |   | Six                        Months ended                        June 30 |     |
|                                                                     |   |                                                                        |     |
|                                                                     |   | 2007                                                                   |     | 2006   |   |
|                                                                     |   |                                                                        |     |        |   |
| **OPERATING                        ACTIVITIES**                          |   |                                                                   |     |   |   |     |   |
| Net cash                        provided                                 |   | $                                                                      | 15,106   |   | $      | 6,901    |   |
|                                                                     |   |                                                                        |          |   |        |          |   |
| **INVESTING                        ACTIVITIES**                          |   |                                                                   |     |   |   |     |   |
| Purchases of                        investments:                         |   |                                                                   |     |   |   |     |   |
| Fixed maturity                        securities                         |   |                                                                   | (159,075 | )      |   | (145,778 | )      |
| Equity                        securities                                 |   |                                                                   | (1,854   | )      |   | (9,335   | )      |
| Mortgage                        loans                                    |   |                                                                   | (35,023  | )      |   | (33,740  | )      |
| Real estate                                                              |   |                                                                   | (846     | )      |   | (43,374  | )      |
| Other investment                        assets                           |   |                                                                   | —  |   |   | 391      |   |
| Sales of                        investments:                             |   |                                                                   |     |   |   |     |   |
| Fixed maturity                        securities                         |   |                                                                   | 13,964   |   |   | 75,493   |   |
| Equity                        securities                                 |   |                                                                   | 3,092    |   |   | 965      |   |
| Real estate                                                              |   |                                                                   | 16,442   |   |   | 2,257    |   |
| Other investment                        assets                           |   |                                                                   | 23,354   |   |   | 12,756   |   |
| Maturities and                        principal paydowns of investments: |   |                                                                   |     |   |   |     |   |
| Fixed maturity                        securities                         |   |                                                                   | 162,019  |   |   | 141,734  |   |
| Equity                        securities                                 |   |                                                                   | 18       |   |   | 2,000    |   |
| Mortgage                        loans                                    |   |                                                                   | 26,345   |   |   | 28,571   |   |
| Net additions to                        property and equipment           |   |                                                                   | (581     | )      |   | (402     | )      |
| Proceeds from sale of                        non insurance affiliate     |   |                                                                   | 10,104   |   |   | —  |   |
|                                                                     |   |                                                                        |          |   |        |          |   |
| Net cash                        provided                                 |   |                                                                   | 57,959   |   |   | 31,538   |   |
|                                                                     |   |                                                                        |          |   |        |          |   |
| **FINANCING                        ACTIVITIES**                          |   |                                                                   |     |   |   |     |   |
| Proceeds from                        borrowings                          |   |                                                                   | 23,927   |   |   | 12,680   |   |
| Repayment of                        borrowings                           |   |                                                                   | (25,927  | )      |   | (22,176  | )      |
| Deposits on                        policyholder account balances         |   |                                                                   | 103,230  |   |   | 103,308  |   |
| Withdrawals from                        policyholder account balances    |   |                                                                   | (155,268 | )      |   | (137,932 | )      |
| Net transfers from                        separate accounts              |   |                                                                   | 8,811    |   |   | 11,833   |   |
| Change in other                        deposits                          |   |                                                                   | 13,224   |   |   | (7,564   | )      |
| Cash dividends to                        stockholders                    |   |                                                                   | (30,074  | )      |   | (6,418   | )      |
| Net acquisition of                        treasury stock                 |   |                                                                   | (337     | )      |   | (2,145   | )      |
|                                                                     |   |                                                                        |          |   |        |          |   |
| Net cash                        used                                     |   |                                                                   | (62,414  | )      |   | (48,414  | )      |
|                                                                     |   |                                                                        |          |   |        |          |   |
|                                                                     |   |                                                                   |     |   |   |     |   |
| Increase (decrease) in                        cash                       |   |                                                                   | 10,651   |   |   | (9,975   | )      |
| Cash at beginning of                        year                         |   |                                                                   | 3,908    |   |   | 12,099   |   |
|                                                                     |   |                                                                        |          |   |        |          |   |
|                                                                     |   |                                                                   |     |   |   |     |   |
| Cash at end of                        period                             |   | $                                                                      | 14,559   |   | $      | 2,124    |   |
|                                                                     |   |                                                                        |          |   |        |          |   |

*See            accompanying Notes to Consolidated Financial Statements (Unaudited).*

**-5-**

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**Kansas City            Life Insurance Company            Notes to Consolidated Financial Statements (Unaudited)**(amounts in thousands, except share data)

***1. NATURE            OF OPERATIONS AND SIGNIFICANT ACCOUNTING POLICIES***

**Basis of            Presentation**

The unaudited            consolidated financial statements, the accompanying notes to these unaudited financial            statements and Management’s Discussion and Analysis of Operations of Kansas City            Life Insurance Company include the accounts of the Company and its subsidiaries,            principally Sunset Life Insurance Company of America (Sunset Life), and Old American            Insurance Company (Old American).

The unaudited            consolidated financial statements have been prepared in accordance with U.S. generally            accepted accounting principles (GAAP) for interim financial reporting and with the            instructions to Form 10-Q and Regulation S-X. Accordingly, they do not include all of            the disclosures required by GAAP for complete financial statements. As such, these            unaudited interim financial statements should be read in conjunction with the            Company’s 2006 Annual Report on Form 10-K. Management believes that the            disclosures are adequate to make the information presented not misleading, and all            normal and recurring adjustments necessary to present fairly the financial position at            June 30, 2007 and the results of its operations for all periods presented have been            made. The results of operations for any interim period are not necessarily indicative            of the Company’s operating results for a full year.

Significant            intercompany transactions have been eliminated in consolidation and certain            reclassifications have been made to the prior period results to conform to the            presentation of the current period.

The preparation            of the unaudited consolidated financial statements requires management of the Company            to make estimates and assumptions relating to the reported amounts of assets and            liabilities, the disclosure of contingent assets and liabilities at the date of the            unaudited consolidated financial statements, and the reported amounts of revenue and            expenses during the period. These estimates are inherently subject to change and actual            results could differ from these estimates.

**Business            Changes**

On January 23,            2006, the Company entered into a definitive agreement to sell its bank subsidiary,            Generations Bank, for $10.1 million in cash to Brooke Corporation. On January 8, 2007,            the Company completed the sale of Generations Bank. The gain on the sale was $1.9            million. The bank subsidiary and the results of operations were not material to the            financial statements of the Company and are not disclosed separately.

**Significant            Accounting Policies**

A complete            summary of significant accounting policies is included in Note 1 to the audited            consolidated financial statements included in the Company’s 2006 Annual Report on            Form 10-K.

***2. NEW            ACCOUNTING PRONOUNCEMENTS***

In September            2005, the Accounting Standards Executive Committee of the American Institute of            Certified Public Accountants (AcSEC) issued Statement of Position 05-1 (SOP 05-1),            *“Accounting by Insurance Enterprises for Deferred Acquisition Costs in            Connection with Modifications or Exchanges of Insurance Contracts”.* SOP 05-1            provides guidance on accounting by insurance enterprises for deferred acquisition costs            on internal replacements of insurance contracts other than those specifically described            in Statement of Financial Accounting Standards (SFAS) No. 97, *“Accounting and            Reporting by Insurance Enterprises for Certain Long-Duration Contracts and for Realized            Gains and Losses from the Sale of Investments”.* SOP 05-1 defines an internal            replacement as a modification in product benefits, features, rights, or coverages that            occurs by exchange of a contract for a new contract, or by amendment, endorsement, or            rider to a contract, or by the election of a feature or coverage within a contract. SOP            05-1 is effective for internal replacements occurring in fiscal years beginning after            December 31, 2006.

**-6-**

----

**Kansas City            Life Insurance Company            Notes to Consolidated Financial Statements (Unaudited) – Continued**

Retrospective            application of SOP 05-1 to previously issued consolidated financial statements is not            permitted. SOP 05-1 was adopted on January 1, 2007, with no material impact to the            unaudited consolidated financial statements.

In June 2006,            the Financial Accounting Standards Board (FASB) issued Interpretation 48            “Accounting for Uncertainty in Income Taxes” (FIN 48). FIN 48 applies to            all uncertain tax positions accounted for under SFAS No. 109 “Accounting for            Income Taxes”. FIN 48 addresses whether tax positions taken or to be taken on tax            returns should be reflected in the financial statements before they are resolved with            the appropriate taxing authority. Previous statements provided no specific guidance            related to such positions. FIN 48 was adopted on January 1, 2007, with no material            impact to the unaudited consolidated financial statements. Other disclosures regarding            FIN 48 are provided in Note 6 Income Taxes.

In September            2006, the FASB issued SFAS No. 157, “Fair Value Measurements” (SFAS 157).            SFAS 157 provides a single definition of fair value, together with a framework for            measuring it, and requires additional disclosure about the use of fair value to measure            assets and liabilities. SFAS 157 also emphasizes that fair value is a market-based            measurement, not an entity-specific measurement, and established a fair value hierarchy            with the highest priority being the quoted price in active markets. This statement is            effective for years beginning on or after November 15, 2007. The Company is currently            evaluating the impact of this statement but does not believe that it will have a            material impact on the unaudited consolidated financial statements.

In February            2007, the FASB issued SFAS No. 159, “The Fair Value Option for Financial Assets            and Financial Liabilities – including an amendment of SFAS No. 115.” SFAS            159 permits an entity to measure certain financial assets and liabilities at fair            value. Under SFAS 159, entities that elect the fair value option will report unrealized            gains and losses in earnings at each subsequent reporting date. The fair value option            may be elected on an instrument-by-instrument basis, with a few exceptions, as long as            it is applied to the instrument in its entirety. Once adopted, the fair value option            election is irrevocable, unless a new election date occurs. This statement is effective            for years beginning after November 15, 2007. The Company is currently evaluating the            impact of this statement but does not believe that it will have a material impact on            the unaudited consolidated financial statements.

All other            Standards and Interpretations of those Standards issued during the six months ended            2007 did not relate to accounting policies and procedures pertinent to the Company at            this time.

***3.            UNREALIZED LOSSES ON SECURITIES***

As of June 30,            2007, the Company had unrealized losses of $66.4 million on investment securities that            had a fair value of $1.8 billion. As of December 31, 2006, the Company had unrealized            losses of $48.0 million on investment securities that had a fair value of $1.6 billion.            The increase in unrealized losses was primarily attributable to the increase in the            interest rates during the six months ended June 30, 2007.

**-7-**

----

**Kansas City            Life Insurance Company            Notes to Consolidated Financial Statements (Unaudited) – Continued**

The following table provides            information regarding unrealized losses on investment securities available for sale, as            of June 30, 2007.

|                                                                               |   |                                                                |    |                                       |   |                              |   |                                     |   |                              |      |                                     |   |   |   |   |   |   |      |   |   |   |   |   |   |
|------------------------------------------------------------------------------------|--------|---------------------------------------------------------------------|---------|--------------------------------------------|--------|-----------------------------------|--------|------------------------------------------|--------|-----------------------------------|-----------|------------------------------------------|--------|--------|--------|--------|--------|--------|-----------|--------|--------|--------|--------|--------|--------|
|                                                                               |   | Investment securities                        with unrealized losses |    |
|                                                                               |   |                                                                     |    |
|                                                                               |   | Less                        than 12 months                          |    | 12                        months or longer |   | Total                             |   |
|                                                                               |   |                                                                     |    |                                            |   |                                   |   |
|                                                                               |   | Fair                        Value                                   |    | Unrealized                        Losses   |   | Fair                        Value |   | Unrealized                        Losses |   | Fair                        Value |      | Unrealized                        Losses |   |
|                                                                               |   |                                                                     |    |                                            |   |                                   |   |                                          |   |                                   |      |                                          |   |
| Bonds:                                                                             |   |                                                                |    |                                       |   |                              |   |                                     |   |                              |      |                                     |   |
| U.S. Treasury                        securities and obligations of U.S. Government |   | $                                                                   | 13,194  |                                       |   | $                                 | 111    |                                     |   | $                                 | 31,626    |                                     |   | $      | 1,254  |   |   | $      | 44,820    |   |   | $      | 1,365  |   |   |
| Federal agencies                        1                                          |   |                                                                | 70,310  |                                       |   |                              | 1,273  |                                     |   |                              | 57,180    |                                     |   |   | 1,805  |   |   |   | 127,490   |   |   |   | 3,078  |   |   |
| Federal agency issued                        mortgage-backed securities 1          |   |                                                                | 29,772  |                                       |   |                              | 988    |                                     |   |                              | 186,088   |                                     |   |   | 7,318  |   |   |   | 215,860   |   |   |   | 8,306  |   |   |
| Corporate                        obligations                                       |   |                                                                | 412,750 |                                       |   |                              | 7,578  |                                     |   |                              | 651,322   |                                     |   |   | 35,246 |   |   |   | 1,064,072 |   |   |   | 42,824 |   |   |
| Corporate                        private-labeled mortgage-backed securities        |   |                                                                | 126,964 |                                       |   |                              | 2,996  |                                     |   |                              | 96,625    |                                     |   |   | 2,868  |   |   |   | 223,589   |   |   |   | 5,864  |   |   |
| Other                                                                              |   |                                                                | 51,123  |                                       |   |                              | 1,134  |                                     |   |                              | 98,185    |                                     |   |   | 3,027  |   |   |   | 149,308   |   |   |   | 4,161  |   |   |
|                                                                               |   |                                                                     |         |                                       |   |                                   |        |                                     |   |                                   |           |                                     |   |        |        |   |   |        |           |   |   |        |        |   |   |
| Fixed maturity                        securities                                   |   |                                                                | 704,113 |                                       |   |                              | 14,080 |                                     |   |                              | 1,121,026 |                                     |   |   | 51,518 |   |   |   | 1,825,139 |   |   |   | 65,598 |   |   |
| Equity                        securities                                           |   |                                                                | 4,610   |                                       |   |                              | 28     |                                     |   |                              | 8,985     |                                     |   |   | 771    |   |   |   | 13,595    |   |   |   | 799    |   |   |
|                                                                               |   |                                                                     |         |                                       |   |                                   |        |                                     |   |                                   |           |                                     |   |        |        |   |   |        |           |   |   |        |        |   |   |
| Total                                                                              |   | $                                                                   | 708,723 |                                       |   | $                                 | 14,108 |                                     |   | $                                 | 1,130,011 |                                     |   | $      | 52,289 |   |   | $      | 1,838,734 |   |   | $      | 66,397 |   |   |
|                                                                               |   |                                                                     |         |                                       |   |                                   |        |                                     |   |                                   |           |                                     |   |        |        |   |   |        |           |   |   |        |        |   |   |

----

The Company            holds a corporate debt security with an unrealized loss of $1.6 million in the category            of investments with losses greater than 20% of book value. This security is from an            issuer in the media industry and has been in the 20% below book value category for one            month. The unrealized loss is primarily caused by a leveraged buyout offer (LBO). All            securities in the table are expected to continue to perform to the original contractual            terms and the Company has the ability and intent to hold them until the recovery of            fair value, which may be at maturity. No securities were considered to be            other-than-temporarily impaired at June 30, 2007.

***4.            COMPREHENSIVE INCOME (LOSS)***

Comprehensive            income (loss) is comprised of net income and other comprehensive income (loss). Other            comprehensive income (loss) includes the unrealized investment gains or losses on            securities available for sale (net of reclassification adjustments for realized            investment gains or losses) net of adjustments to DAC, VOBA, and policyholder account            balances. In addition, other comprehensive income (loss) includes the change in the            pension liability. Other comprehensive income (loss) also includes deferred income            taxes on these items.

Comprehensive            loss was $17.0 million for the second quarter of 2007, which consisted of net income of            $11.8 million and other comprehensive loss of $28.8 million. Comprehensive loss was            $11.6 million for the second quarter of 2006, which consisted of net income of $10.1            million and other comprehensive loss of $21.7 million. The other comprehensive loss for            both periods was due primarily to an increase in unrealized investment losses as a            result of an increase in interest rates during the respective quarters.

Comprehensive            loss was $1.0 million for the six months ended June 30, 2007, which consisted of net            income of $20.1 million and other comprehensive loss of $21.1 million. Comprehensive            loss was $33.0 million for the six months ended June 30, 2006, which consisted of net            income of $17.3 million and other comprehensive loss of $50.3 million. The change in            other comprehensive loss in 2007 versus 2006 was due primarily to a decrease in the            change in unrealized investment losses, which was the result of a smaller increase in            interest rates for the six month period of 2007 versus the six months ended June 30,            2006.

**-8-**

----

**Kansas City            Life Insurance Company            Notes to Consolidated Financial Statements (Unaudited) – Continued**

***5. INCOME            PER SHARE***

Due to the            Company’s capital structure and the absence of other potentially dilutive            securities, there is no difference between basic and diluted earnings per common share            for any of the periods reported. The weighted average number of shares outstanding was            11,858,378 and 11,877,907 for the quarters ended June 30, 2007 and 2006, respectively.            The weighted average number of shares outstanding was 11,856,947 and 11,893,746 for the            six months ended June 30, 2007 and 2006, respectively.

***6. INCOME            TAXES***

The second            quarter income tax expense was $5.5 million or 32% of income before tax for 2007,            versus $4.1 million or 29% of income before tax for the prior year period. The income            tax expense for the six months ended June 30, 2007 was $9.6 million or 32% of income            before tax for 2007, versus $6.9 million or 28% of income before tax for the prior year            period.

The effective            income tax rate in both years was lower than the prevailing corporate federal income            tax rate of 35%, primarily due to income tax credits generated from the Company’s            investments in affordable housing. The effect of the affordable housing tax credits on            the effective tax rate in the second quarter was a benefit of approximately 3% of            income before tax in 2007 and 6% in 2006. The effect of the affordable housing tax            credits on the effective tax rate for the six months ended June 30, was a benefit of            approximately 3% of income before tax in 2007 and 6% in 2006.

***7.******SEGMENT INFORMATION***

The Company has            three reportable business segments, which are defined based on the nature of the            products and services offered: Individual Insurance, Group Insurance and Old American.            The Individual Insurance segment consists of individual insurance products for both            Kansas City Life and Sunset Life. The Individual Insurance segment is marketed through            a nationwide sales force of independent general agents and third-party arrangements.            The Group Insurance segment consists of sales of group life, group disability, and            group dental products. This segment is marketed through a nationwide sales force of            independent general agents, group brokers and third-party marketing arrangements. Old            American consists of individual insurance products designed primarily as final expense            products. These products are marketed through a nationwide general agency sales force            with exclusive territories, using direct response marketing to supply agents with            leads.

Separate            investment portfolios are maintained for each of the three life insurance companies of            the Company. However, investments are allocated to the Group Insurance segment based            upon its cash flows. Its investment income is modeled using the year of investment            method. Home office functions are fully integrated for the three companies in order to            maximize economies of scale. Therefore, operating expenses are allocated to the            segments based upon internal cost studies, which are consistent with industry cost            methodologies.

Inter-segment            revenues are not material. The Company operates in the United States and no individual            customer accounts for 10% or more of the Company’s revenue.

**-9-**

----

**Kansas City            Life Insurance Company            Notes to Consolidated Financial Statements (Unaudited) – Continued**

The following            schedule provides, in thousands, the financial performance of each of the three            reportable operating segments of the Company.

|                                          |   |   |   |   |                                        |   |                                   |    |                                |   |                                              |   |                       |   |   |   |   |   |   |   |   |    |   |   |   |    |   |
|-----------------------------------------------|--------|--------|--------|--------|---------------------------------------------|--------|----------------------------------------|---------|-------------------------------------|--------|---------------------------------------------------|--------|----------------------------|--------|--------|--------|--------|--------|--------|--------|--------|---------|--------|--------|--------|---------|--------|
|                                          |   |   |   |   | Individual                        Insurance |   | Group                        Insurance |    | Old                        American |   | Intercompany                        Eliminations1 |   | Total                      |   |
|                                          |   |   |   |   |                                             |   |                                        |    |                                     |   |                                                   |   |                            |   |
| Insurance                        revenues:    |   |   |   |   |                                        |   |                                   |    |                                |   |                                              |   |                       |   |
| Second                        quarter:        |   |   | 2007   |   |                                        | $      | 30,513                                 |  2 |                                |   | $                                                 | 11,395 |                       |   |   | $      | 15,661 |   |   |   | $      | (150    | )      |   | $      | 57,419  |   |
|                                          |   |   | 2006   |   |                                        |   | 31,069                                 |    |                                |   |                                              | 11,923 |  3                    |   |   |   | 15,965 |   |   |   |   | (143    | )      |   |   | 58,814  |   |
| Six months:                                   |   |   | 2007   |   |                                        | $      | 61,953                                 |  2 |                                |   | $                                                 | 22,794 |                       |   |   | $      | 31,380 |   |   |   | $      | (301    | )      |   | $      | 115,826 |   |
|                                          |   |   | 2006   |   |                                        |   | 64,312                                 |    |                                |   |                                              | 22,398 |  3                    |   |   |   | 32,199 |   |   |   |   | (287    | )      |   |   | 118,622 |   |
|                                          |   |   |   |   |                                        |   |                                   |    |                                |   |                                              |   |                       |   |   |   |   |   |   |   |   |    |   |   |   |    |   |
| Net investment                        income: |   |   |   |   |                                        |   |                                   |    |                                |   |                                              |   |                       |   |   |   |   |   |   |   |   |    |   |   |   |    |   |
| Second                        quarter:        |   |   | 2007   |   |                                        | $      | 45,216                                 |    |                                |   | $                                                 | 122    |                       |   |   | $      | 3,333  |   |   |   | $      | — |   |   | $      | 48,671  |   |
|                                          |   |   | 2006   |   |                                        |   | 45,355                                 |    |                                |   |                                              | 80     |                       |   |   |   | 3,388  |   |   |   |   | — |   |   |   | 48,823  |   |
| Six months:                                   |   |   | 2007   |   |                                        | $      | 88,920                                 |    |                                |   | $                                                 | 187    |                       |   |   | $      | 6,648  |   |   |   | $      | — |   |   | $      | 95,755  |   |
|                                          |   |   | 2006   |   |                                        |   | 90,819                                 |    |                                |   |                                              | 151    |                       |   |   |   | 6,766  |   |   |   |   | — |   |   |   | 97,736  |   |
|                                          |   |   |   |   |                                        |   |                                   |    |                                |   |                                              |   |                       |   |   |   |   |   |   |   |   |    |   |   |   |    |   |
| Net income                        (loss):     |   |   |   |   |                                        |   |                                   |    |                                |   |                                              |   |                       |   |   |   |   |   |   |   |   |    |   |   |   |    |   |
| Second                        quarter:        |   |   | 2007   |   |                                        | $      | 10,406                                 |  2 |                                |   | $                                                 | (369   | )                          |   |   | $      | 1,775  |   |   |   | $      | — |   |   | $      | 11,812  |   |
|                                          |   |   | 2006   |   |                                        |   | 8,607                                  |    |                                |   |                                              | (217   | )                        3 |   |   |   | 1,719  |   |   |   |   | — |   |   |   | 10,109  |   |
| Six months:                                   |   |   | 2007   |   |                                        | $      | 18,433                                 |  2 |                                |   | $                                                 | (561   | )                          |   |   | $      | 2,246  |   |   |   | $      | — |   |   | $      | 20,118  |   |
|                                          |   |   | 2006   |   |                                        |   | 15,585                                 |    |                                |   |                                              | (663   | ) 3                   |   |   |   | 2,376  |   |   |   |   | — |   |   |   | 17,298  |   |

1            Elimination entries to remove intercompany transactions for life and accident and            health insurance were as follows: insurance revenues from the Group Insurance segment            and operating expenses from the Individual Insurance segment were eliminated to arrive            at Consolidated Statements of Income.

2            Contract charges include expense loads which were reduced for the portion that            represents unearned revenue. Contract charges were reduced by $1.7 million in the second quarter and sixmonths of 2007, from a correction of the unearned revenue portion of a universallife product. The amount of the correction attributable to prior periods was$1.4 million, with $0.2 million in 2005, $0.9 million in 2006 and $0.3 millionin the first quarter of 2007. The prior period financial statements were notrevised as the amounts were determined to be immaterial.

3 An            adjustment was reflected in the second quarter of 2006 related to renewal premiums            attributable to years 2003 through 2006. The unrecorded premiums in 2003, 2004 and 2005            were $0.1 million, $0.2 million and $0.3 million, respectively. The previously            unrecorded premiums attributable to the first quarter of 2006 totaled $0.2 million.            Excluding the unrecorded premiums, the net loss for the segment was $0.8 million for            the second quarter of 2006 and $1.1 million for the six months ended June 30, 2006.            Management assessed the materiality of such premiums against prior periods and deemed            the unrecorded premiums were not material.

**-10-**

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**Kansas City            Life Insurance Company            Notes to Consolidated Financial Statements (Unaudited) – Continued**

***8.            PENSIONS AND OTHER POSTRETIREMENT BENEFITS***

Components of            net periodic benefit cost:

|                                                   |   |                                         |   |                                         |   |   |   |   |   |   |   |   |   |
|--------------------------------------------------------|--------|----------------------------------------------|--------|----------------------------------------------|--------|--------|--------|--------|--------|--------|--------|--------|--------|
|                                                   |   | Pension                        Benefits      |   | Other                        Benefits        |   |
|                                                   |   |                                              |   |                                              |   |
|                                                   |   | Quarter ended                        June 30 |   | Quarter ended                        June 30 |   |
|                                                   |   |                                              |   |                                              |   |        |   |        |   |
|                                                   |   | 2007                                         |   | 2006                                         |   | 2007   |   | 2006   |   |
|                                                   |   |                                              |   |                                              |   |        |   |        |   |
|                                                   |
| Service cost                                           |   | $                                            | 563    |                                         | $      | 589    |   | $      | 204    |   | $      | 220    |   |
| Interest                        cost                   |   |                                         | 1,856  |                                         |   | 1,927  |   |   | 327    |   |   | 355    |   |
| Expected return on plan                        assets  |   |                                         | (2,133 | )                                            |   | (2,116 | )      |   | (13    | )      |   | (14    | )      |
| Amortization                        of:                |   |                                         |   |                                         |   |   |   |   |   |   |   |   |   |
| Unrecognized actuarial                        loss     |   |                                         | 750    |                                         |   | 717    |   |   | 29     |   |   | 59     |   |
| Unrecognized prior                        service cost |   |                                         | (161   | )                                            |   | (170   | )      |   | (95    | )      |   | (95    | )      |
|                                                   |   |                                              |   |                                              |   |        |   |        |   |
| Net periodic benefits                        cost      |   | $                                            | 875    |                                         | $      | 947    |   | $      | 452    |   | $      | 525    |   |
|                                                   |   |                                              |        |                                         |        |        |   |        |        |   |        |        |   |

|                                                   |   |                                                                   |   |                                                                   |   |   |   |   |   |   |   |   |   |
|--------------------------------------------------------|--------|------------------------------------------------------------------------|--------|------------------------------------------------------------------------|--------|--------|--------|--------|--------|--------|--------|--------|--------|
|                                                   |   | Pension                        Benefits                                |   | Other                        Benefits                                  |   |
|                                                   |   |                                                                        |   |                                                                        |   |
|                                                   |   | Six                        Months ended                        June 30 |   | Six                        Months ended                        June 30 |   |
|                                                   |   |                                                                        |   |                                                                        |   |        |   |        |   |
|                                                   |   | 2007                                                                   |   | 2006                                                                   |   | 2007   |   | 2006   |   |
|                                                   |   |                                                                        |   |                                                                        |   |        |   |        |   |
|                                                   |
| Service                        cost                    |   | $                                                                      | 1,127  |                                                                   | $      | 1,179  |   | $      | 408    |   | $      | 440    |   |
| Interest                        cost                   |   |                                                                   | 3,712  |                                                                   |   | 3,854  |   |   | 654    |   |   | 710    |   |
| Expected return on                        plan assets  |   |                                                                   | (4,265 | )                                                                      |   | (4,233 | )      |   | (27    | )      |   | (28    | )      |
| Amortization                        of:                |   |                                                                   |   |                                                                   |   |   |   |   |   |   |   |   |   |
| Unrecognized actuarial                        loss     |   |                                                                   | 1,499  |                                                                   |   | 1,434  |   |   | 57     |   |   | 118    |   |
| Unrecognized prior                        service cost |   |                                                                   | (323   | )                                                                      |   | (340   | )      |   | (189   | )      |   | (190   | )      |
|                                                   |   |                                                                        |        |                                                                   |        |        |   |        |        |   |        |        |   |
| Net periodic                        benefits cost      |   | $                                                                      | 1,750  |                                                                   | $      | 1,894  |   | $      | 903    |   | $      | 1,050  |   |
|                                                   |   |                                                                        |        |                                                                   |        |        |   |        |        |   |        |        |   |

***9.            SHARE-BASED PAYMENT***

The Company has            a long-term incentive plan for senior management that awards participants for the            increase in the share price of the Company’s common stock through units (phantom            shares) assigned by the Board of Directors. The awards are calculated over three-year            intervals on a calendar year basis. At the conclusion of each three-year interval,            participants will receive awards based on the increase in the share price during a            defined measurement period, times the number of units. The increase in the share price            will be determined based on the change in the share price from the beginning to the end            of the three-year interval. Dividends are accrued and paid at the end of each            three-year interval to the extent that they exceed negative stock price appreciation.            Plan payments are contingent on the continued employment of the participant unless            termination is due to a qualifying event such as death, disability or            retirement.

In the first            quarter of 2007, the plan made a payment of $1.0 million to plan participants for the            three-year interval ended December 31, 2006. A payment of $1.5 million was made in the            first quarter of 2006 for the three-year interval ended December 31, 2005. No payments            were made in the second quarters of 2007 or 2006. At each reporting period an estimate            of the share-based compensation expense is accrued, utilizing the share price (fair            value) at the period end. The cost of compensation that has been charged (credited) as            an operating expense was $173 and ($479), for the second quarters of 2007 and 2006,            respectively. The associated tax benefit (expense) for these periods was $61 and            ($168), respectively.

**-11-**

----

**Kansas City            Life Insurance Company            Notes to Consolidated Financial Statements (Unaudited) – Continued**

The cost of            compensation reduced operating expense for the six month periods ending June 30, 2007            and 2006 was $165 and $289, respectively. The associated tax expense for these periods            was $58 and $101, respectively.

***10.            COMMITMENTS***

In the normal            course of business, the Company has open purchase and sale commitments. At June 30,            2007, the Company had purchase commitments to fund mortgage loans and other investments            of $17.0 million and $4.1 million of sale commitments. There were no additional            commitments subsequent to June 30, 2007.

***11. CONTINGENT            LIABILITIES***

The life            insurance industry, including the Company, has been subject to an increase in            litigation in recent years. Such litigation has been pursued on behalf of purported            classes of policyholders and other claims and legal actions in jurisdictions where            juries often award punitive damages, which are grossly disproportionate to actual            damages.

Although no            assurances can be given and no determinations can be made at this time, management            believes that the ultimate liability, if any, with respect to these claims and actions,            would have no material effect on the Company’s business, results of operations or            financial position.

***12. GUARANTEES AND            INDEMNIFICATIONS***

The Company is            subject to various indemnification obligations issued in conjunction with certain            transactions, primarily assumption reinsurance agreements, stock purchase agreements,            mortgage servicing agreements, construction and lease guarantees and borrowing            agreements whose terms range in duration and often are not explicitly defined.            Generally, a maximum obligation is not explicitly stated; therefore, the overall            maximum amount of the obligation under the indemnifications cannot be reasonably            estimated. While we are unable to estimate with certainty the ultimate legal and            financial liability with respect to these indemnifications, we believe the likelihood            is remote that material payments would be required under such indemnifications, and            therefore such indemnifications would not result in a material adverse effect on the            Company’s business, financial position or results of operations.

**-12-**

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**Item            2.****Management’s Discussion and Analysis of Financial Condition and            Results of Operations**

**Cautionary Statement on            Forward-Looking Information**

This report            reviews the Company’s financial condition and results of operations, and            historical information is presented and discussed. Where appropriate, factors that may            affect future financial performance are also identified and discussed. Certain            statements made in this report include “forward-looking statements” that            fall within the meaning of the Private Securities Litigation Reform Act of 1995.            Forward-looking statements include any statement that may predict, forecast, indicate            or imply future results, performance or achievements rather than historical facts and            may contain words like “believe,” “expect,”            “estimate,” “project,” “forecast,”            “anticipate,” “plan,” “will,” “shall,”            and other words, phrases or expressions with similar meaning.

Forward-looking            statements are subject to known and unknown risks, uncertainties and other factors that            may cause actual results to differ materially from those contemplated by the            forward-looking statements. Factors that could cause the Company’s future results            to differ materially from expected results include, but are not limited to:

|   |   |                                                                                                                                                                                                                                              |
|--------|--------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|   | • | Changes in general                        economic conditions, including the performance of financial markets and                        interest rates;                                                                                          |
|   |   |                                                                                                                                                                                                                                              |
|   | • | Increasing competition                        and changes in customer behavior, which may affect the Company’s                        ability to sell its products and retain business;                                                     |
|   |   |                                                                                                                                                                                                                                              |
|   | • | Customer and agent                        response to new products, distribution channels and marketing                        initiatives;                                                                                                       |
|   |   |                                                                                                                                                                                                                                              |
|   | • | Fluctuations in                        experience regarding current mortality, morbidity, persistency and interest                        rates relative to expected amounts used in pricing the Company’s                        products; |
|   |   |                                                                                                                                                                                                                                              |
|   | • | Changes in assumptions                        related to deferred acquisition costs and the value of business                        acquired;                                                                                                    |
|   |   |                                                                                                                                                                                                                                              |
|   | • | Regulatory, accounting                        or tax changes that may affect the cost of, or the demand for, the                        Company’s products or services;                                                                     |
|   |   |                                                                                                                                                                                                                                              |
|   | • | Unanticipated changes                        in industry trends and ratings assigned by nationally recognized rating                        organizations.                                                                                        |

The Company            cannot give assurances that such statements will prove to be correct. Given these risks            and uncertainties, investors should not place undue reliance on forward-looking            statements as a prediction of actual results.

**Consolidated Results of            Operations**

***Summary of            Results***

Net income for            the second quarter of 2007 increased $1.7 million to $11.8 million or 17%, versus the            same quarter in the prior year. Net income per share for the second quarter increased            $0.15 to $1.00 per share versus $0.85 per share in the second quarter of the prior            year. Net income for the six months increased $2.8 million to $20.1 million or 16% over            the prior year. Net income per share for the six months increased $0.25 to $1.70 per            share compared with $1.45 per share in the prior year period.

***Sales***

The Company            measures sales in terms of new premiums and deposits. Premiums are included in            insurance revenues in the Consolidated Statements of Income (Unaudited), while deposits            are shown as a Financing Activity in the Consolidated Statements of Cash Flows            (Unaudited). The first set of tables below reconciles premiums included in insurance            revenues and provides detail by new and renewal business. New premiums are also            detailed by product. The second set of tables reconciles deposits with the Consolidated            Statements of Cash Flows (Unaudited) and provides detail by new and renewal deposits.            New deposits are also detailed by product.

The            Company’s marketing plan has been to focus its primary growth strategies on its            individual life insurance business, which includes new premiums for individual life            products and new deposits for universal life and variable universal life products. The            marketing plan also includes strategies to grow the business through its existing sales            force and the addition of new agents and general agents.

**-13-**

----

Consolidated            total premiums increased $0.9 million or 2% in the second quarter of 2007 compared with            a decline in the prior year. New premiums in the second quarter increased $1.6 million            or 21% versus a decline in the prior year. This increase was due to a $1.6 million or            144% increase in immediate annuity premiums. Consolidated new individual life premiums            declined $0.1 million or 3% in the second quarter while new group life sales increased            $0.1 million or 42% compared with a year ago.

Total premiums            for the six months ended 2007 were flat compared with a decline in the prior year            period. New premiums for the six months increased 3% compared with a decline a year            ago. The increase in the six months was primarily due to a $0.9 million or 33% increase            in immediate annuity premiums and a $0.2 million or 37% increase in group life            premiums. These increases were partially offset by a $0.4 million or 6% decline in            individual life premiums and a $0.2 million or 4% decline in group accident and health            premiums. Group accident and health premiums have been affected by the termination of            the stop loss product line at year end 2006, which has resulted in a $0.5 million            decline in premiums through the six months of 2007. Excluding this terminated block            from the new sales figures would result in an 8% increase in new premiums and a 7%            increase in the group accident and health product premiums for the six            months.

Consolidated            renewal premiums declined 2% in the second quarter and 1% for the six months versus the            same periods a year ago. Individual life renewal premiums were flat for the second            quarter but declined 1% for the six months compared with the prior year. Group life and            accident and health renewal premiums declined 6% for the second quarter but were flat            for the six months versus the same periods a year ago.

|                                                       |   |                                         |   |   |   |   |   |   |   |   |   |   |   |
|------------------------------------------------------------|--------|----------------------------------------------|--------|--------|--------|--------|--------|--------|--------|--------|--------|--------|--------|
|                                                       |   | Quarter ended June                        30 |   |
|                                                       |   |                                              |   |
|                                                       |   | 2007                                         |   | %      |   | 2006   |   | %      |   |
|                                                       |   |                                              |   |        |   |        |   |        |   |
| New                        premiums:                       |   |                                         |   |   |   |   |   |   |   |   |   |   |   |
| Individual life                        insurance           |   | $                                            | 3,020  |   |   | (3     | )      | $      | 3,118  |   |   | (2     | )      |
| Immediate                        annuities                 |   |                                         | 2,790  |   |   | 144    |   |   | 1,145  |   |   | (71    | )      |
| Group life                        insurance                |   |                                         | 350    |   |   | 42     |   |   | 246    |   |   | (21    | )      |
| Group accident and                        health insurance |   |                                         | 2,710  |   |   | (4     | )      |   | 2,811  |   |   | 24     |   |
|                                                       |   |                                              |        |   |   |   |   |        |        |   |   |   |   |
| Total new                        premiums                  |   |                                         | 8,870  |   |   | 21     |   |   | 7,320  |   |   | (24    | )      |
| Renewal                        premiums                    |   |                                         | 36,372 |   |   | (2     | )      |   | 37,054 |   |   | 2      |   |
|                                                       |   |                                              |        |   |   |   |   |        |        |   |   |   |   |
| Total                        premiums                      |   | $                                            | 45,242 |   |   | 2      |   | $      | 44,374 |   |   | (3     | )      |
|                                                       |   |                                              |        |   |   |   |   |        |        |   |   |   |   |

|                                                       |   |                                            |   |   |   |    |   |   |   |   |   |   |   |
|------------------------------------------------------------|--------|-------------------------------------------------|--------|--------|--------|---------|--------|--------|--------|--------|--------|--------|--------|
|                                                       |   | Six                        Months ended June 30 |   |
|                                                       |   |                                                 |   |
|                                                       |   | 2007                                            |   | %      |   | 2006    |   | %      |   |
|                                                       |   |                                                 |   |        |   |         |   |        |   |
| New                        premiums:                       |   |                                            |   |   |   |    |   |   |   |   |   |   |   |
| Individual life                        insurance           |   | $                                               | 5,995  |   |   | (6      | )      | $      | 6,369  |   |   | 5      |   |
| Immediate                        annuities                 |   |                                            | 3,782  |   |   | 33      |   |   | 2,847  |   |   | (66    | )      |
| Group life                        insurance                |   |                                            | 664    |   |   | 37      |   |   | 483    |   |   | (30    | )      |
| Group accident and                        health insurance |   |                                            | 5,406  |   |   | (4      | )      |   | 5,640  |   |   | 19     |   |
|                                                       |   |                                                 |        |   |   |    |   |        |        |   |   |   |   |
| Total new                        premiums                  |   |                                            | 15,847 |   |   | 3       |   |   | 15,339 |   |   | (23    | )      |
| Renewal                        premiums                    |   |                                            | 72,043 |   |   | (1      | )      |   | 72,655 |   |   | 1      |   |
|                                                       |   |                                                 |        |   |   |    |   |        |        |   |   |   |   |
| Total                        premiums                      |   | $                                               | 87,890 |   |   | — |   | $      | 87,994 |   |   | (5     | )      |
|                                                       |   |                                                 |        |   |   |    |   |        |        |   |   |   |   |

Total new            deposits declined 2% for the second quarter but increased $0.9 million or 3% for the            six months compared with the prior year. New universal life sales increased 11% for the            second quarter and 13% for the six months versus 2006. New variable universal life            products declined $0.1 million or 18% in the second quarter but were up 2% for the six            months. Fixed deferred annuity deposits declined $3.2 million or 36% in the second            quarter and $3.1 million or 21% for the first half compared with the prior year.            However, variable annuity sales increased $2.7 million or 61% in the second quarter and            $3.4 million or 36% for the six months versus a year ago. Increased sales of variable            annuity products reflect customer interest in the equity markets.

Total renewal            deposits declined 2% for the second quarter and 1% for the six months, compared with            the prior year. Renewal deposits declined 1% on universal life, variable universal            life, and variable annuity products; while fixed

**-14-**

----

deferred annuity            deposits declined 5% in the second quarter. Universal life and variable universal life            renewal deposits declined 2% and fixed deferred annuity products declined $3.8 million            or 30% for the six months. However, renewal variable annuity deposits increased $3.7            million or 63% compared with a year ago.

|                                                     |   |                                            |    |   |   |    |   |   |    |   |   |   |   |
|----------------------------------------------------------|--------|-------------------------------------------------|---------|--------|--------|---------|--------|--------|---------|--------|--------|--------|--------|
|                                                     |   | Quarter ended June                        30    |    |
|                                                     |   |                                                 |    |
|                                                     |   | 2007                                            |    | %      |   | 2006    |   | %      |    |
|                                                     |   |                                                 |    |        |   |         |   |        |    |
| New                        deposits:                     |   |                                            |    |   |   |    |   |   |    |
| Universal life                        insurance          |   | $                                               | 2,684   |   |   | 11      |   | $      | 2,411   |   |   | (4     | )      |
| Variable universal life                        insurance |   |                                            | 513     |   |   | (18     | )      |   | 623     |   |   | 1      |   |
| Fixed deferred                        annuities          |   |                                            | 5,672   |   |   | (36     | )      |   | 8,871   |   |   | (34    | )      |
| Variable                        annuities                |   |                                            | 7,173   |   |   | 61      |   |   | 4,446   |   |   | (34    | )      |
|                                                     |   |                                                 |    |   |   |         |   |   |    |
| Total new                        deposits                |   |                                            | 16,042  |   |   | (2      | )      |   | 16,351  |   |   | (29    | )      |
| Renewal                        deposits                  |   |                                            | 34,204  |   |   | (2      | )      |   | 34,810  |   |   | (11    | )      |
|                                                     |   |                                                 |    |   |   |         |   |   |    |
| Total                        deposits                    |   | $                                               | 50,246  |   |   | (2      | )      | $      | 51,161  |   |   | (18    | )      |
|                                                     |   |                                                 |    |   |   |         |   |   |    |
|                                                     |   |                                            |    |   |   |    |   |   |    |   |   |   |   |
|                                                     |   | Six                        Months ended June 30 |    |
|                                                     |   |                                                 |    |
|                                                     |   |                                            | 2007    |   |   | %       |   |   | 2006    |   |   | %      |   |
|                                                     |   |                                                 |    |        |   |         |   |        |    |
| New                        deposits:                     |   |                                            |    |   |   |    |   |   |    |   |   |   |   |
| Universal life                        insurance          |   | $                                               | 5,435   |   |   | 13      |   | $      | 4,821   |   |   | 3      |   |
| Variable universal life                        insurance |   |                                            | 1,397   |   |   | 2       |   |   | 1,366   |   |   | 9      |   |
| Fixed deferred                        annuities          |   |                                            | 12,000  |   |   | (21     | )      |   | 15,100  |   |   | (41    | )      |
| Variable                        annuities                |   |                                            | 12,806  |   |   | 36      |   |   | 9,426   |   |   | (32    | )      |
|                                                     |   |                                                 |    |   |   |         |   |   |    |
| Total new                        deposits                |   |                                            | 31,638  |   |   | 3       |   |   | 30,713  |   |   | (32    | )      |
| Renewal                        deposits                  |   |                                            | 71,592  |   |   | (1      | )      |   | 72,595  |   |   | (10    | )      |
|                                                     |   |                                                 |    |   |   |         |   |   |    |
| Total                        deposits                    |   | $                                               | 103,230 |   |   | — |   | $      | 103,308 |   |   | (18    | )      |
|                                                     |   |                                                 |    |   |   |         |   |   |    |

***Insurance            Revenues***

Insurance            revenues consist of premiums and contract charges less reinsurance ceded. Total            insurance revenues decreased 2% for both the second quarter and six months compared            with the prior year.

Total individual            life premiums were flat for the second quarter but declined 1% for the six months            compared with the prior year. Premiums received from the sale of new immediate            annuities increased 144% in the second quarter and 33% for the six months. Premiums            from new group life increased 42% in the second quarter and 37% for the six months.            Total premiums received from accident and health business declined 5% for the second            quarter and 1% for the six months. However, these premiums included the stop loss            product line that the Company exited at year end 2006. Excluding the premiums on this            exited business, the total group accident and health sales increased 2% for the six            months. Premiums on the Old American segment declined 3% for both the second quarter            and the six months.

Contract charges            declined 7% for the second quarter and 5% for the six months. Contract charges consist            of cost of insurance, surrender charges, expense loads and deferred revenue. Contract            charges were reduced $1.7 million in the second quarter and six months of 2007, from a correction of the unearned revenue portion of auniversal life product. The amount of the correction attributable to prior periods was $1.4 million, with $0.2 million in 2005, $0.9 million            in 2006 and $0.3 million in the first quarter of 2007.

***Investment            Revenues***

Net investment            income was essentially flat in the second quarter but declined 2% for the six months.            The results in both the second quarter and six months were primarily due to reduced            investment assets, partially offset by the increase in interest rates and a reduction            in real estate expenses.

The Company had            a small realized investment gain in the second quarter compared with a $1.9 million            gain in 2006, whereas gains for the six months were $5.2 million compared with $1.6            million a year ago. The realized investment gains for the six months were due to the            sale of real estate properties in the first quarter of 2007, which generated

**-15-**

----

gains of $3.3            million, and the $1.9 million gain from the sale of Generations Bank. The following            table provides detail concerning realized investment gains and losses for the second            quarter and six month periods of 2007 and 2006.

|                                                            |   |                                 |    |                                    |   |    |   |   |    |   |   |    |   |
|-----------------------------------------------------------------|--------|--------------------------------------|---------|-----------------------------------------|--------|---------|--------|--------|---------|--------|--------|---------|--------|
|                                                            |   | Quarter                        ended |         | Six                        Months ended |        |
|                                                                 |        | June                        30       |         | June                        30          |        |
|                                                                 |        |                                      |         |                                         |        |         |        |        |         |
| **Realized                        Investment Gains and Losses** |   | 2007                                 |    | 2006                                    |   | 2007    |   | 2006   |    |
|                                                            |   |                                      |    |                                         |   |         |   |        |    |
| Gross gains                        resulting from:              |   |                                 |    |                                    |   |    |   |   |    |   |   |    |   |
| Sales of investment                        securities           |   | $                                    | 21      |                                    | $      | 1,558   |   | $      | 24      |   | $      | 2,055   |   |
| Investment securities                        called             |   |                                 | 5       |                                    |   | 543     |   |   | 723     |   |   | 562     |   |
| Sales of real                        estate                     |   |                                 | 150     |                                    |   | 697     |   |   | 3,490   |   |   | 710     |   |
| Sale of Generations                        Bank                 |   |                                 | — |                                    |   | — |   |   | 1,904   |   |   | — |   |
| Other investment                        gains                   |   |                                 | — |                                    |   | 1       |   |   | — |   |   | 1       |   |
|                                                            |   |                                      |    |                                         |   |         |   |        |    |
| Total gross                        gains                        |   |                                 | 176     |                                    |   | 2,799   |   |   | 6,141   |   |   | 3,328   |   |
|                                                            |   |                                      |    |                                         |   |         |   |        |    |
| Gross losses                        resulting from:             |   |                                 |    |                                    |   |    |   |   |    |   |   |    |   |
| Sales of investment                        securities           |   |                                 | (137    | )                                       |   | (461    | )      |   | (887    | )      |   | (1,155  | )      |
| Investment securities                        called             |   |                                 | (16     | )                                       |   | (291    | )      |   | (49     | )      |   | (318    | )      |
| Other investment                        losses                  |   |                                 | — |                                    |   | — |   |   | — |   |   | (100    | )      |
|                                                            |   |                                      |    |                                         |   |         |   |        |    |
| Total gross                        losses                       |   |                                 | (153    | )                                       |   | (752    | )      |   | (936    | )      |   | (1,573  | )      |
| Amortization of DAC                        and VOBA             |   |                                 | 15      |                                    |   | (142    | )      |   | (43     | )      |   | (115    | )      |
|                                                            |   |                                      |    |                                         |   |         |   |        |    |
| Realized investment                        gains                |   | $                                    | 38      |                                    | $      | 1,905   |   | $      | 5,162   |   | $      | 1,640   |   |
|                                                            |   |                                      |    |                                         |   |         |   |        |    |

The Company            regularly evaluates the quality of its investment portfolio. Occasionally, in a            diversified portfolio, certain investments may suffer market price deterioration due to            a wide variety of factors. Distressed securities are placed onto watch lists that are            then further analyzed to identify any specific securities that the Company believes may            have experienced other than temporary declines in fair value. To the extent that the            Company believes these fluctuations represent an other than temporary decline in value,            the value of the investment is adjusted by a charge to income as a realized investment            loss. The Company’s analysis identified no securities with other than temporary            impairment in the second quarter or six months ended June 30, 2007 and 2006.

As of June 30,            2007, the Company had investments with unrealized losses of $66.4 million on            investments with a fair value of $1.8 billion. As of December 31, 2006, the Company had            investments with unrealized losses of $48.0 million on investments with a fair value of            $1.6 billion. The increase in unrealized losses was primarily attributable to the            increase in interest rates during the six months ended June 30, 2007.

***Policyholder            Benefits***

Policyholder            benefits consist of death benefits (mortality), annuity benefits, accident and health            benefits, surrenders and the associated increase or decrease in reserves for future            policy benefits. Policyholder benefits decreased 1% for the second quarter but            increased 1% for the six months compared with the prior year. Death benefits improved            in both the second quarter and the six months along with a decrease in life surrenders.            In the second quarter these items were partially offset by an increase in other            benefits, which was primarily due to group accident and health benefits.

***Interest            Credited to Policyholder Account Balances***

Interest was            credited to policyholder account balances for universal life, fixed deferred annuities            and other investment-type products. Interest credited to policyholder account balances            decreased $0.9 million or 4% in the second quarter and $1.7 million or 4% for the six            months, due primarily to lower policyholder account balances.

***Amortization of Deferred            Acquisition Costs (DAC) and Value of Business Acquired (VOBA)***

Certain life            insurance and annuity products require that DAC is amortized in proportion to the            expected future gross profits. Profit expectations are based upon assumptions of future            interest spreads, mortality margins, expense margins and policy and premium persistency            experience. At least annually, a review is performed of the assumptions related to            profit expectations. If it is determined the assumptions should be revised, the impact            of the changes is recorded as a change in DAC amortization in the current period due to            an unlocking adjustment. A

**-16-**

----

similar analysis            is performed on VOBA annually as well and if necessary adjustments are made in the            current period VOBA amortization.

The amortization            of DAC was $3.6 million in the second quarter, compared with $9.2 million for 2006, and            $13.1 million for the six months, compared with $18.9 million in the prior year period.            The decrease in the amortization of DAC for these periods was due primarily to the            change in DAC unlocking year-to-year. In the second quarter of 2007, the amortization            of DAC decreased $5.4 million due to unlocking adjustments for interest spreads and            mortality margins. During the second quarter of 2006, the amortization of DAC decreased            by $0.5 million due to an unlocking adjustment.

The amortization            of VOBA was $2.8 million in the second quarter compared with $1.7 million for 2006, and            $4.5 million for the six months compared with $3.4 million in the prior year period.            The increase in the amortization of VOBA for these periods was due primarily to a VOBA            unlocking adjustment in the second quarter of 2007 in the amount of $1.1 million for            mortality margins. There was no VOBA unlocking adjustment in 2006.

***Operating            Expenses***

Operating            expenses consist of commissions and production allowances, net of the capitalization of            commission and production allowances, and expenses from the Company’s operations.            Operating expenses increased $0.2 million or 1% in the second quarter and decreased            $0.7 million or 1% for the six months. The increase in the second quarter was due to an            increase in salaries and employee benefits while the decrease for the six months was            due to lower legal expenses and premium taxes.

***Income            Taxes***

The second            quarter income tax expense was $5.5 million or 32% of income before tax for 2007,            versus $4.1 million or 29% of income before tax for the prior year period. The income            tax expense for the six months ended June 30, 2007 was $9.6 million or 32% of income            before tax for 2007, versus $6.9 million or 28% of income before tax for the prior year            period.

The effective            income tax rate in both years was lower than the prevailing corporate federal income            tax rate of 35% primarily due to income tax credits generated from the Company’s            investments in affordable housing. The effect of the affordable housing tax credits on            the effective tax rate in the second quarter was a benefit of approximately 3% of            income before tax in 2007 and 6% in 2006.The effect of the affordable housing tax            credits on the effective tax rate for the six months ended June 30, was a benefit of            approximately 3% of income before tax in 2007 and 6% in 2006.

**Operating            Results by Segment**

The Company has            three reportable business segments, which are defined based on the nature of the            products and services offered: Individual Insurance, Group Insurance and Old American.            The Individual Insurance segment consists of individual insurance products for both            Kansas City Life and Sunset Life. The Individual Insurance segment is marketed through            a nationwide sales force of independent general agents and third-party marketing            arrangements. The Group Insurance segment consists of sales of group life, group            disability, and group dental products. This segment is marketed through a nationwide            sales force of independent general agents, group brokers and third-party marketing            arrangements. Old American consists of individual insurance products designed primarily            as final expense products. These products are marketed through a nationwide general            agency sales force with exclusive territories, using direct response marketing to            supply agents with leads. Refer to Note 7 - Segment Information in the Notes to the            Consolidated Financial Statements (Unaudited).

**-17-**

----

***Individual Insurance***The following table presents financial data of the Individual Insurance            business segment for the second quarters and six months ended June 30, 2007 and 2006            (in thousands):

|                                                                                             |   |                                         |    |                                                                   |   |    |   |   |    |   |   |    |   |
|--------------------------------------------------------------------------------------------------|--------|----------------------------------------------|---------|------------------------------------------------------------------------|--------|---------|--------|--------|---------|--------|--------|---------|--------|
|                                                                                             |   | Quarter ended                        June 30 |    | Six                        Months ended                        June 30 |   |
|                                                                                             |   | 2007                                         |    | 2006                                                                   |   | 2007    |   | 2006   |    |
|                                                                                             |   |                                              |         |                                                                   |        |         |   |        |         |   |        |         |   |
| Insurance                        revenues:                                                       |   |                                         |    |                                                                   |   |    |   |   |    |   |   |    |   |
| Premiums                                                                                         |   | $                                            | 14,944  |                                                                   | $      | 12,931  |   | $      | 27,528  |   | $      | 26,438  |   |
| Contract                        charges                                                          |   |                                         | 26,477  |                                                                   |   | 28,520  |   |   | 55,180  |   |   | 57,853  |   |
| Reinsurance                        ceded                                                         |   |                                         | (10,908 | )                                                                      |   | (10,382 | )      |   | (20,755 | )      |   | (19,979 | )      |
|                                                                                             |   |                                              |         |                                                                   |        |         |   |        |         |   |        |         |   |
| Total insurance                        revenues                                                  |   |                                         | 30,513  |                                                                   |   | 31,069  |   |   | 61,953  |   |   | 64,312  |   |
| Investment                        revenues:                                                      |   |                                         |    |                                                                   |   |    |   |   |    |   |   |    |   |
| Net investment                        income                                                     |   |                                         | 45,216  |                                                                   |   | 45,355  |   |   | 88,920  |   |   | 90,819  |   |
| Realized investment                        gains                                                 |   |                                         | 62      |                                                                   |   | 1,716   |   |   | 5,190   |   |   | 1,379   |   |
| Other                        revenues                                                            |   |                                         | 3,684   |                                                                   |   | 2,751   |   |   | 6,028   |   |   | 5,178   |   |
|                                                                                             |   |                                              |         |                                                                   |        |         |   |        |         |   |        |         |   |
| Total                        revenues                                                            |   |                                         | 79,475  |                                                                   |   | 80,891  |   |   | 162,091 |   |   | 161,688 |   |
|                                                                                             |   |                                              |         |                                                                   |        |         |   |        |         |   |        |         |   |
|                                                                                             |   |                                         |    |                                                                   |   |    |   |   |    |   |   |    |   |
| Policyholder                        benefits                                                     |   |                                         | 23,504  |                                                                   |   | 23,443  |   |   | 48,681  |   |   | 47,631  |   |
| Interest credited to                        policyholder account balances                        |   |                                         | 22,732  |                                                                   |   | 23,656  |   |   | 45,505  |   |   | 47,214  |   |
| Amortization of                        deferred acquisition costs and value of business acquired |   |                                         | 3,312   |                                                                   |   | 7,728   |   |   | 11,331  |   |   | 15,676  |   |
| Operating                        expenses                                                        |   |                                         | 14,600  |                                                                   |   | 14,000  |   |   | 29,286  |   |   | 29,457  |   |
|                                                                                             |   |                                              |         |                                                                   |        |         |   |        |         |   |        |         |   |
| Total benefits and                        expenses                                               |   |                                         | 64,148  |                                                                   |   | 68,827  |   |   | 134,803 |   |   | 139,978 |   |
|                                                                                             |   |                                              |         |                                                                   |        |         |   |        |         |   |        |         |   |
|                                                                                             |   |                                         |    |                                                                   |   |    |   |   |    |   |   |    |   |
| Income before income                        tax expense                                          |   |                                         | 15,327  |                                                                   |   | 12,064  |   |   | 27,288  |   |   | 21,710  |   |
|                                                                                             |   |                                         |    |                                                                   |   |    |   |   |    |   |   |    |   |
| Income tax                        expense                                                        |   |                                         | 4,921   |                                                                   |   | 3,457   |   |   | 8,855   |   |   | 6,125   |   |
|                                                                                             |   |                                              |         |                                                                   |        |         |   |        |         |   |        |         |   |
|                                                                                             |   |                                         |    |                                                                   |   |    |   |   |    |   |   |    |   |
| Net                        income                                                                |   | $                                            | 10,406  |                                                                   | $      | 8,607   |   | $      | 18,433  |   | $      | 15,585  |   |
|                                                                                             |   |                                              |         |                                                                   |        |         |   |        |         |   |        |         |   |

Premium information is provided            in the table below.

|                                             |   |                                         |   |   |   |   |   |   |   |   |   |    |   |
|--------------------------------------------------|--------|----------------------------------------------|--------|--------|--------|--------|--------|--------|--------|--------|--------|---------|--------|
|                                             |   | Quarter ended June                        30 |   |
|                                             |   |                                              |   |
|                                             |   | 2007                                         |   | %      |   | 2006   |   | %      |   |
|                                             |   |                                              |   |        |   |        |   |        |   |
| New                        premiums:             |   |                                         |   |   |   |   |   |   |   |   |   |    |   |
| Individual life                        insurance |   | $                                            | 1,431  |   |   | (8     | )      | $      | 1,552  |   |   | 15      |   |
| Immediate                        annuities       |   |                                         | 2,790  |   |   | 144    |   |   | 1,145  |   |   | (71     | )      |
|                                             |   |                                              |        |   |   |   |   |        |        |   |   |    |   |
| Total new                        premiums        |   |                                         | 4,221  |   |   | 57     |   |   | 2,697  |   |   | (49     | )      |
| Renewal                        premiums          |   |                                         | 10,723 |   |   | 5      |   |   | 10,234 |   |   | — |   |
|                                             |   |                                              |        |   |   |   |   |        |        |   |   |    |   |
| Total                        premiums            |   | $                                            | 14,944 |   |   | 16     |   | $      | 12,931 |   |   | (17     | )      |
|                                             |   |                                              |        |   |   |   |   |        |        |   |   |    |   |

|                                             |   |                                            |   |   |   |   |   |   |   |   |   |   |   |
|--------------------------------------------------|--------|-------------------------------------------------|--------|--------|--------|--------|--------|--------|--------|--------|--------|--------|--------|
|                                             |   | Six                        Months ended June 30 |   |
|                                             |   |                                                 |   |
|                                             |   | 2007                                            |   | %      |   | 2006   |   | %      |   |
|                                             |   |                                                 |   |        |   |        |   |        |   |
| New                        premiums:             |   |                                            |   |   |   |   |   |   |   |   |   |   |   |
| Individual life                        insurance |   | $                                               | 2,829  |   |   | (11    | )      | $      | 3,184  |   |   | 17     |   |
| Immediate                        annuities       |   |                                            | 3,782  |   |   | 33     |   |   | 2,847  |   |   | (66    | )      |
|                                             |   |                                                 |        |   |   |   |   |        |        |   |   |   |   |
| Total new                        premiums        |   |                                            | 6,611  |   |   | 10     |   |   | 6,031  |   |   | (46    | )      |
| Renewal                        premiums          |   |                                            | 20,917 |   |   | 2      |   |   | 20,407 |   |   | 1      |   |
|                                             |   |                                                 |        |   |   |   |   |        |        |   |   |   |   |
| Total                        premiums            |   | $                                               | 27,528 |   |   | 4      |   | $      | 26,438 |   |   | (16    | )      |
|                                             |   |                                                 |        |   |   |   |   |        |        |   |   |   |   |

**-18-**

----

Deposit information is provided            in the table below.

|                                                     |   |                                            |    |   |   |    |   |   |    |   |   |   |   |
|----------------------------------------------------------|--------|-------------------------------------------------|---------|--------|--------|---------|--------|--------|---------|--------|--------|--------|--------|
|                                                     |   | Quarter ended June                        30    |    |
|                                                     |   |                                                 |    |
|                                                     |   | 2007                                            |    | %      |   | 2006    |   | %      |    |
|                                                     |   |                                                 |    |        |        |    |        |        |    |        |        |   |
| New                        deposits:                     |   |                                            |    |   |   |    |   |   |    |   |   |   |   |
| Universal life                        insurance          |   | $                                               | 2,684   |   |   | 11      |   | $      | 2,411   |   |   | (4     | )      |
| Variable universal life                        insurance |   |                                            | 513     |   |   | (18     | )      |   | 623     |   |   | 1      |   |
| Fixed deferred                        annuities          |   |                                            | 5,672   |   |   | (36     | )      |   | 8,871   |   |   | (34    | )      |
| Variable                        annuities                |   |                                            | 7,173   |   |   | 61      |   |   | 4,446   |   |   | (34    | )      |
|                                                     |   |                                                 |         |   |   |    |   |        |         |   |   |   |   |
| Total new                        deposits                |   |                                            | 16,042  |   |   | (2      | )      |   | 16,351  |   |   | (29    | )      |
| Renewal                        deposits                  |   |                                            | 34,204  |   |   | (2      | )      |   | 34,810  |   |   | (11    | )      |
|                                                     |   |                                                 |         |   |   |    |   |        |         |   |   |   |   |
| Total                        deposits                    |   | $                                               | 50,246  |   |   | (2      | )      | $      | 51,161  |   |   | (18    | )      |
|                                                     |   |                                                 |         |   |   |    |   |        |         |   |   |   |   |
|                                                     |   |                                            |    |   |   |    |   |   |    |   |   |   |   |
|                                                     |   | Six                        Months ended June 30 |    |
|                                                     |   |                                                 |    |
|                                                     |   | 2007                                            |    | %      |   | 2006    |   | %      |    |
|                                                     |   |                                                 |         |   |        |         |   |        |         |   |        |        |   |
| New                        deposits:                     |   |                                            |    |   |   |    |   |   |    |   |   |   |   |
| Universal life                        insurance          |   | $                                               | 5,435   |   |   | 13      |   | $      | 4,821   |   |   | 3      |   |
| Variable universal life                        insurance |   |                                            | 1,397   |   |   | 2       |   |   | 1,366   |   |   | 9      |   |
| Fixed deferred                        annuities          |   |                                            | 12,000  |   |   | (21     | )      |   | 15,100  |   |   | (41    | )      |
| Variable                        annuities                |   |                                            | 12,806  |   |   | 36      |   |   | 9,426   |   |   | (32    | )      |
|                                                     |   |                                                 |         |   |   |    |   |        |         |   |   |   |   |
| Total new                        deposits                |   |                                            | 31,638  |   |   | 3       |   |   | 30,713  |   |   | (32    | )      |
| Renewal                        deposits                  |   |                                            | 71,592  |   |   | (1      | )      |   | 72,595  |   |   | (10    | )      |
|                                                     |   |                                                 |         |   |   |    |   |        |         |   |   |   |   |
| Total                        deposits                    |   | $                                               | 103,230 |   |   | — |   | $      | 103,308 |   |   | (18    | )      |
|                                                     |   |                                                 |         |   |   |    |   |        |         |   |   |   |   |

Net income for            this segment in the second quarter was $10.4 million, an increase of $1.8 million from            2006. Net income for the six months was $18.4 million, an increase of $2.8 million            compared with 2006. The increase in the second quarter was largely the result of a            reduction in the amortization of DAC, a decrease in interest credited to policyholder            account balances and an increase in premiums. These improvements were partially offset            by an increase in the amortization of VOBA, a decrease in contract charges and a            decrease in realized investment gains. The improved results for the six months were due            to a decrease in the amortization of DAC, a decrease in interest credited to            policyholder account balances, an increase in premiums and an increase in realized            investment gains. Partially offsetting these improvements was a decrease in contract            charges and a decline in net investment income. The decline in net investment income            was primarily due to lower invested assets.

Insurance            revenues for this segment decreased 2% in the second quarter compared with the prior            year and 4% for the six months versus a year ago. Total premiums increased in the            second quarter and for the six months, reflecting improved sales of immediate            annuities. However, in both periods the premium increase was offset by a decline in            contract charges. This decline resulted from an adjustment to deferred revenues, lower            surrender charges and a decline in cost of insurance charges. Total reinsurance ceded            increased 5% in the second quarter compared with a year ago and 4% for the six months,            reflecting increased sales of premiums and deposits on individual business.

Contract charges were reduced by $1.7 million in the second quarter and sixmonths of 2007, from a correction of the unearned revenue portion of a universallife product. The amount of the correction attributable to prior periods was$1.4 million, with $0.2 million in 2005, $0.9 million in 2006 and $0.3 millionin the first quarter of 2007.

Total premiums            increased 16% in the second quarter compared with 2006. New individual life premiums            declined $0.1 million or 8% in the second quarter compared with the 2006. However, new            immediate annuity premiums increased $1.6 million or 144%. Renewal premiums in the            second quarter increased 5%.

Total premiums            for the six months increased 4% versus 2006. The increase in premiums was the result of            a 33% increase in new immediate annuity premiums, which more than offset a decline in            new individual life premiums. Total new premiums increased 10% and renewal premiums            increased 2% for the six months.

**-19-**

----

New deposits            declined $0.3 million or 2% in the second quarter but increased $0.9 million or 3% for            the six months, as compared with the prior year. New universal life deposits increased            $0.3 million or 11% compared with the second quarter a year ago and $0.6 million or 13%            for the six months. New variable universal life deposits decreased $0.1 million or 18%            in the second quarter but increased 2% for the six months, compared with the same            periods in the prior year. New variable annuity deposits increased $2.7 million or 61%            in the second quarter and $3.4 million or 36% for the six months compared with the same            periods in the prior year. New fixed deferred annuity deposits decreased $3.2 million            or 36% for the second quarter and $3.1 million or 21% for the six months, compared with            2006. As mentioned above, the increase in universal life deposits reflects the            Company’s primary focus on its individual life business. Increased sales of            variable annuity products reflect customer interest in the equity markets.

Net investment            income was essentially flat in the second quarter but declined 2% for the six months.            The results in both the second quarter and six months were primarily due to reduced            investment assets, partially offset by the increase in interest rates and a reduction            in real estate expenses.

The Individual            Insurance segment had realized investment gains of $0.1 million in the second quarter            compared with realized investment gains of $1.7 million in 2006. Realized investment            gains for the six months were $5.2 million compared with $1.4 million a year ago. The            realized investment gains for the six months were due to the sale of real estate            properties in the first quarter, which generated realized investment gains of $3.5            million, and the $1.9 million gain from the sale of Generations Bank.

Policyholder            benefits were flat for the second quarter and increased 2% for the six months.            Surrenders of individual life insurance declined in both the second quarter and six            months. The declines in life surrenders were partially offset by an increase in            benefits paid to individual life and accident and health claimants.

Interest            credited to policyholder account balances decreased $0.9 million or 4% in the second            quarter and $1.7 million or 4% for the six months compared to the same periods a year            ago. This decrease was primarily due to lower policyholder account balances.

The amortization            of DAC was $1.1 million in the second quarter, compared with $6.7 million for the            second quarter of 2006, and $8.1 million for the six months, compared with $13.6            million in the prior year period. The decrease in the amortization of DAC for these            periods was due primarily to the change in DAC unlocking year-to-year. In the second            quarter of 2007, the amortization of DAC decreased $5.4 million due to unlocking            adjustments that related to assumptions for interest spreads and mortality margins.            During the second quarter of 2006, the amortization of DAC decreased by $0.5 million            due to an unlocking adjustment.

The amortization            of VOBA was $2.2 million in the second quarter compared with $1.0 million for 2006, and            $3.2 million for the six months compared with $2.0 million in the prior year period.            The increase in the amortization of VOBA for these periods was due primarily to a VOBA            unlocking adjustment in the second quarter of 2007 in the amount of $1.1 million, which            was related to the assumptions for mortality margins. There was no VOBA unlocking            adjustment in 2006.

Operating            expenses consist of commissions and production allowances, net of the capitalization of            commissions and production allowances and expenses from the Company’s operations.            Operating expenses increased $0.6 million in the second quarter compared with the prior            year, but decreased $0.2 million for the six months. The increase for the second            quarter was due to an increase in salaries and employee benefits, while the decrease            for the six months was due to lower legal expenses and premium taxes.

**-20-**

----

***Group            Insurance***

The following            table presents financial data of the Group Insurance business segment for the second            quarters and six months ended June 30, 2007 and 2006 (in thousands):

|                                                  |   |                                         |   |                                                                   |   |   |   |   |   |   |   |   |   |
|-------------------------------------------------------|--------|----------------------------------------------|--------|------------------------------------------------------------------------|--------|--------|--------|--------|--------|--------|--------|--------|--------|
|                                                  |   | Quarter ended                        June 30 |   | Six                        Months ended                        June 30 |   |
|                                                  |   | 2007                                         |   | 2006                                                                   |   | 2007   |   | 2006   |   |
|                                                  |   |                                              |   |                                                                        |   |        |   |        |   |
| Insurance                        revenues:            |   |                                         |   |                                                                   |   |   |   |   |   |   |   |   |   |
| Premiums                                              |   | $                                            | 13,698 |                                                                   | $      | 14,384 |   | $      | 27,234 |   | $      | 27,307 |   |
| Reinsurance                        ceded              |   |                                         | (2,303 | )                                                                      |   | (2,461 | )      |   | (4,440 | )      |   | (4,909 | )      |
|                                                  |   |                                              |        |                                                                   |        |        |   |        |        |   |        |        |   |
| Total insurance                        revenues       |   |                                         | 11,395 |                                                                   |   | 11,923 |   |   | 22,794 |   |   | 22,398 |   |
| Investment                        revenues:           |   |                                         |   |                                                                   |   |   |   |   |   |   |   |   |   |
| Net investment                        income          |   |                                         | 122    |                                                                   |   | 80     |   |   | 187    |   |   | 151    |   |
| Other                        revenues                 |   |                                         | 69     |                                                                   |   | 225    |   |   | 141    |   |   | 322    |   |
|                                                  |   |                                              |        |                                                                   |        |        |   |        |        |   |        |        |   |
| Total                        revenues                 |   |                                         | 11,586 |                                                                   |   | 12,228 |   |   | 23,122 |   |   | 22,871 |   |
|                                                  |   |                                              |        |                                                                   |        |        |   |        |        |   |        |        |   |
|                                                  |   |                                         |   |                                                                   |   |   |   |   |   |   |   |   |   |
| Policyholder                        benefits          |   |                                         | 7,442  |                                                                   |   | 7,774  |   |   | 14,799 |   |   | 14,395 |   |
| Operating                        expenses             |   |                                         | 4,672  |                                                                   |   | 4,764  |   |   | 9,125  |   |   | 9,423  |   |
|                                                  |   |                                              |        |                                                                   |        |        |   |        |        |   |        |        |   |
| Total benefits and                        expenses    |   |                                         | 12,114 |                                                                   |   | 12,538 |   |   | 23,924 |   |   | 23,818 |   |
|                                                  |   |                                              |        |                                                                   |        |        |   |        |        |   |        |        |   |
|                                                  |   |                                         |   |                                                                   |   |   |   |   |   |   |   |   |   |
| Loss before income tax                        benefit |   |                                         | (528   | )                                                                      |   | (310   | )      |   | (802   | )      |   | (947   | )      |
|                                                  |   |                                         |   |                                                                   |   |   |   |   |   |   |   |   |   |
| Income tax                        benefit             |   |                                         | (159   | )                                                                      |   | (93    | )      |   | (241   | )      |   | (284   | )      |
|                                                  |   |                                              |        |                                                                   |        |        |   |        |        |   |        |        |   |
|                                                  |
| Net loss                                              |   | $                                            | (369   | )                                                                      | $      | (217   | )      | $      | (561   | )      | $      | (663   | )      |
|                                                  |   |                                              |        |                                                                   |        |        |   |        |        |   |        |        |   |

Premium information is provided            in the table below.

|                                              |   |                                            |   |   |   |    |   |   |   |   |   |   |   |
|---------------------------------------------------|--------|-------------------------------------------------|--------|--------|--------|---------|--------|--------|--------|--------|--------|--------|--------|
|                                              |   | Quarter ended June                        30    |   |
|                                              |   |                                                 |   |
|                                              |   | 2007                                            |   | %      |   | 2006    |   | %      |   |
|                                              |   |                                                 |   |        |   |         |   |        |   |
| New                        premiums:              |   |                                            |   |   |   |    |   |   |   |   |   |   |   |
| Group life                        insurance       |   | $                                               | 350    |   |   | 42      |   | $      | 246    |   |   | (21    | )      |
| Group dental                        insurance     |   |                                            | 1,645  |   |   | 12      |   |   | 1,472  |   |   | 76     |   |
| Group disability                        insurance |   |                                            | 371    |   |   | (8      | )      |   | 403    |   |   | (25    | )      |
| Other group                        insurance      |   |                                            | 694    |   |   | (26     | )      |   | 936    |   |   | 5      |   |
|                                              |   |                                                 |        |   |   |    |   |        |        |   |   |   |   |
| Total new                        premiums         |   |                                            | 3,060  |   |   | — |   |   | 3,057  |   |   | 19     |   |
| Renewal                        premiums           |   |                                            | 10,638 |   |   | (6      | )      |   | 11,327 |   |   | 14     |   |
|                                              |   |                                                 |        |   |   |    |   |        |        |   |   |   |   |
| Total                        premiums             |   | $                                               | 13,698 |   |   | (5      | )      | $      | 14,384 |   |   | 15     |   |
|                                              |   |                                                 |        |   |   |    |   |        |        |   |   |   |   |
|                                              |   |                                            |   |   |   |    |   |   |   |   |   |   |   |
|                                              |   | Six                        Months ended June 30 |   |
|                                              |   |                                                 |   |
|                                              |   | 2007                                            |   | %      |   | 2006    |   | %      |   |
|                                              |   |                                                 |   |        |   |         |   |        |   |
| New                        premiums:              |   |                                            |   |   |   |    |   |   |   |   |   |   |   |
| Group life                        insurance       |   | $                                               | 664    |   |   | 37      |   | $      | 483    |   |   | (30    | )      |
| Group dental                        insurance     |   |                                            | 3,408  |   |   | 12      |   |   | 3,042  |   |   | 66     |   |
| Group disability                        insurance |   |                                            | 722    |   |   | (5      | )      |   | 763    |   |   | (31    | )      |
| Other group                        insurance      |   |                                            | 1,276  |   |   | (30     | )      |   | 1,835  |   |   | 3      |   |
|                                              |   |                                                 |        |   |   |    |   |        |        |   |   |   |   |
| Total new                        premiums         |   |                                            | 6,070  |   |   | (1      | )      |   | 6,123  |   |   | 13     |   |
| Renewal                        premiums           |   |                                            | 21,164 |   |   | — |   |   | 21,184 |   |   | 7      |   |
|                                              |   |                                                 |        |   |   |    |   |        |        |   |   |   |   |
| Total                        premiums             |   | $                                               | 27,234 |   |   | — |   | $      | 27,307 |   |   | 8      |   |
|                                              |   |                                                 |        |   |   |    |   |        |        |   |   |   |   |

**-21-**

----

Insurance            revenues for the Group Insurance segment decreased $0.5 million or 4% for the second            quarter but increased $0.4 million or 2% for the six months. There are two factors from            the prior year which affect the comparison of insurance revenues for both the second            quarter and six months. First, the Company exited the stop loss market at year end            2006. Direct premiums for the stop loss block declined $0.2 million or 26% in the            second quarter and $0.5 million or 31% for the six months. Second, in the second            quarter of 2006 the Company identified unrecorded renewal premiums of $0.8 million            attributable to years 2003 through 2006. The unrecorded premiums in 2003, 2004 and 2005            were $0.1 million, $0.2 million and $0.3 million, respectively. The unrecorded premiums            attributable to the first quarter of 2006 were $0.2 million. Excluding these two            factors, insurance revenues would have increased 4% and 5% for the second quarter and            six months, respectively.

Total new group            premiums were flat in the second quarter but declined 1% for the six months. New group            life premiums increased 42% in the second quarter and 37% for the six months, compared            with the same prior year periods. New group accident and health premiums declined 4% in            both the second quarter and six months. However, new group accident and health premiums            include stop loss premiums in both periods. The segment exited this line as the            managing third-party administrator was acquired and the contract was subsequently            terminated. Excluding this exited block, new group accident and health premiums would            have increased 6% in the second quarter and 7% for the six months compared with a year            ago. This increase is due to a 12% increase in both the second quarter and six months            on new dental premiums. Renewal premiums decreased 6% for the second quarter and were            flat for the six months. However, excluding the unrecorded premiums recorded in 2006            from earlier periods, renewal premiums would have increased 3% for the six            months.

Reinsurance on            premiums decreased 6% for the quarter and 10% for the six months compared with the same            periods last year. This decrease was primarily due to the termination of the stop loss            business, which had substantial reinsurance and also due to a separate change in            reinsurance on certain accidental death and dismemberment insurance.

Policyholder            benefits decreased 4% for the second quarter. However, these benefits increased 3% for            the six months of 2007. Death benefits in the group life product line decreased 3% for            the second quarter as mortality improved somewhat in the second quarter but increased            8% for the six months. Benefits paid on disability and other group products declined 3%            for the second quarter but increased 2% for the six months. Disability benefits paid on            long-term and short-term disability product lines declined 9% in the second quarter but            increased 24% for the six months. Benefits paid on other group products, primarily the            dental product line, decreased 1% for the second quarter but increased 1% for the six            months.

Operating            expenses consist of commissions and production allowances and expenses from the            Company’s operations. Operating expenses decreased 2% in the second quarter and            3% for the six months, compared with the same periods in 2006. These decreases were the            result of a decrease in commissions and a decrease in direct expenses, largely in            salaries and benefits.

The net loss for            this segment totaled $0.4 million for the second quarter of 2007 compared with the $0.2            million loss in the second quarter of 2006. The net loss for the six months was $0.6            million or an improvement of 15%, compared with the $0.7 million loss a year earlier.            Excluding the unrecorded premiums previously discussed, the net loss for this segment            was $0.8 million for the second quarter of 2006 and a net loss of $1.1 million for the            six months ended June 30, 2006.

**-22-**

----

***Old American Insurance            Company***

The following            table presents financial data of the Old American Insurance Company business segment            for the second quarters and six months ended June 30, 2007 and 2006 (in            thousands):

|                                                                                             |   |                                         |   |                                                                   |   |   |   |   |   |   |   |   |   |
|--------------------------------------------------------------------------------------------------|--------|----------------------------------------------|--------|------------------------------------------------------------------------|--------|--------|--------|--------|--------|--------|--------|--------|--------|
|                                                                                             |   | Quarter ended                        June 30 |   | Six                        Months ended                        June 30 |   |
|                                                                                             |   | 2007                                         |   | 2006                                                                   |   | 2007   |   | 2006   |   |
|                                                                                             |   |                                              |   |                                                                        |   |        |   |        |   |
| Insurance                        revenues:                                                       |   |                                         |   |                                                                   |   |   |   |   |   |   |   |   |   |
| Premiums                                                                                         |   | $                                            | 16,750 |                                                                   | $      | 17,202 |   | $      | 33,429 |   | $      | 34,536 |   |
| Reinsurance                        ceded                                                         |   |                                         | (1,089 | )                                                                      |   | (1,237 | )      |   | (2,049 | )      |   | (2,337 | )      |
|                                                                                             |   |                                              |        |                                                                   |        |        |   |        |        |   |        |        |   |
| Total insurance                        revenues                                                  |   |                                         | 15,661 |                                                                   |   | 15,965 |   |   | 31,380 |   |   | 32,199 |   |
| Investment                        revenues:                                                      |   |                                         |   |                                                                   |   |   |   |   |   |   |   |   |   |
| Net investment                        income                                                     |   |                                         | 3,333  |                                                                   |   | 3,388  |   |   | 6,648  |   |   | 6,766  |   |
| Realized investment                        gains (losses)                                        |   |                                         | (24    | )                                                                      |   | 189    |   |   | (28    | )      |   | 261    |   |
| Other                        revenues                                                            |   |                                         | 4      |                                                                   |   | 1      |   |   | 5      |   |   | 5      |   |
|                                                                                             |   |                                              |        |                                                                   |        |        |   |        |        |   |        |        |   |
| Total                        revenues                                                            |   |                                         | 18,974 |                                                                   |   | 19,543 |   |   | 38,005 |   |   | 39,231 |   |
|                                                                                             |   |                                              |        |                                                                   |        |        |   |        |        |   |        |        |   |
|                                                                                             |   |                                         |   |                                                                   |   |   |   |   |   |   |   |   |   |
| Policyholder                        benefits                                                     |   |                                         | 10,048 |                                                                   |   | 10,315 |   |   | 21,511 |   |   | 21,990 |   |
| Amortization of                        deferred acquisition costs and value of business acquired |   |                                         | 3,095  |                                                                   |   | 3,139  |   |   | 6,267  |   |   | 6,640  |   |
| Operating                        expenses                                                        |   |                                         | 3,294  |                                                                   |   | 3,629  |   |   | 7,016  |   |   | 7,201  |   |
|                                                                                             |   |                                              |        |                                                                   |        |        |   |        |        |   |        |        |   |
| Total benefits and                        expenses                                               |   |                                         | 16,437 |                                                                   |   | 17,083 |   |   | 34,794 |   |   | 35,831 |   |
|                                                                                             |   |                                              |        |                                                                   |        |        |   |        |        |   |        |        |   |
|                                                                                             |   |                                         |   |                                                                   |   |   |   |   |   |   |   |   |   |
| Income before income                        tax expense                                          |   |                                         | 2,537  |                                                                   |   | 2,460  |   |   | 3,211  |   |   | 3,400  |   |
|                                                                                             |   |                                         |   |                                                                   |   |   |   |   |   |   |   |   |   |
| Income tax                        expense                                                        |   |                                         | 762    |                                                                   |   | 741    |   |   | 965    |   |   | 1,024  |   |
|                                                                                             |   |                                              |        |                                                                   |        |        |   |        |        |   |        |        |   |
|                                                                                             |
| Net income                                                                                       |   | $                                            | 1,775  |                                                                   | $      | 1,719  |   | $      | 2,246  |   | $      | 2,376  |   |
|                                                                                             |   |                                              |        |                                                                   |        |        |   |        |        |   |        |        |   |

Premium information is provided            in the table below.

|                                    |   |                                            |   |   |   |   |   |   |   |   |   |   |   |
|-----------------------------------------|--------|-------------------------------------------------|--------|--------|--------|--------|--------|--------|--------|--------|--------|--------|--------|
|                                    |   | Quarter ended June                        30    |   |
|                                    |   |                                                 |   |
|                                    |   | 2007                                            |   | %      |   | 2006   |   | %      |   |
|                                    |   |                                                 |   |        |   |        |   |        |   |
| New premiums                            |   | $                                               | 1,589  |   |   | 1      |   | $      | 1,566  |   |   | (14    | )      |
| Renewal                        premiums |   |                                            | 15,161 |   |   | (3     | )      |   | 15,636 |   |   | (3     | )      |
|                                    |   |                                                 |        |   |   |   |   |        |        |   |   |   |   |
| Total                        premiums   |   | $                                               | 16,750 |   |   | (3     | )      | $      | 17,202 |   |   | (4     | )      |
|                                    |   |                                                 |        |   |   |   |   |        |        |   |   |   |   |
|                                    |   |                                            |   |   |   |   |   |   |   |   |   |   |   |
|                                    |   | Six                        Months ended June 30 |   |
|                                    |   |                                                 |   |
|                                    |   | 2007                                            |   | %      |   | 2006   |   | %      |   |
|                                    |   |                                                 |   |        |   |        |   |        |   |
|                                    |   |                                            |   |   |   |   |   |   |   |   |   |   |   |
| New premiums                            |   | $                                               | 3,166  |   |   | (1     | )      | $      | 3,185  |   |   | (4     | )      |
| Renewal                        premiums |   |                                            | 30,263 |   |   | (3     | )      |   | 31,351 |   |   | (4     | )      |
|                                    |   |                                                 |        |   |   |   |   |        |        |   |   |   |   |
| Total                        premiums   |   | $                                               | 33,429 |   |   | (3     | )      | $      | 34,536 |   |   | (4     | )      |
|                                    |   |                                                 |        |   |   |   |   |        |        |   |   |   |   |

Net income for            this segment was $1.8 million for the second quarter compared with $1.7 million in the            prior year. Net income for the second quarter improved slightly with a decline in            policyholder benefits of $0.3 million and operating expenses of $0.3 million. These            improvements were partially offset by a decline in insurance revenues of $0.3 million            and a decrease in realized investment gains and losses of $0.2 million. Net income for            the six months was $2.2 million versus $2.4 million for the six months of 2006. The            slight decline in net income reflected a

**-23-**

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decrease in insurance revenues            and realized investment gains and losses, which were largely offset by decreases in            policyholder benefits and amortization of DAC and VOBA.

Insurance            revenues decreased 2% in the second quarter and 3% for the six months compared with the            prior year. Total premiums declined $0.5 million or 3% in the second quarter and $1.1            million or 3% for the six months compared with the same periods a year ago. New            premiums increased 1% versus a 14% decline for the second quarter a year ago. New            premiums for the six months declined 1%, compared with a 4% decline in the same period            of 2006.

Net investment            income declined $0.1 million or 2% in both the second quarter and six months compared            with 2006. This decrease was largely the result of a small decline in both the invested            asset volume and investment rates.

Total            policyholder benefits declined 3% in the second quarter compared with the prior year            and 2% in the six months versus a year ago. These decreases were primarily the result            of a decline in death benefits, reflecting improved mortality.

The amortization            of DAC and VOBA decreased 1% in the second quarter and $0.4 million or 6% in the six            months compared with last year.

Operating            expenses consist of commissions and production allowances, net of the capitalization of            commission and production allowances, and expenses from the Company’s operations.            Commissions on premium products increased $0.6 million for the second quarter and $0.9            million for the six months but were largely offset by the capitalization of these            expenses. Insurance operating expenses declined 12% in the second quarter compared with            the prior year and declined 6% for the six months versus last year. These declines were            due to reduced salaries and benefits for the second quarter and a reduction in premiums            taxes for both the second quarter and six month periods.

**Liquidity and Capital            Resources**

***Liquidity***

Statements made            in the Company’s 2006 Form 10-K and the 2006 Annual Report to Stockholders remain            pertinent, as the Company’s liquidity position is materially unchanged from            year-end 2006.

The Company            meets liquidity requirements primarily through positive cash flows from operations. The            Company has sufficient sources of liquidity to satisfy operational requirements.            Primary sources of cash flow are premiums, other insurance considerations and deposits,            receipts for policyholder accounts, investment sales and maturities, investment income            and access to credit from other financial institutions. The principal uses of cash are            for the insurance operations, including the purchase of investments, payment of            insurance benefits, operating expenses, dividends, income taxes, withdrawals from            policyholder accounts and costs related to acquiring new business.

Cash from            operations for the six months ended June 30, 2007 increased $8.2 million versus the            same period a year ago. Contributing to this increase were several items. First, the            Company had a $2.8 million increase in payables and a $3.2 million increase in claims            liabilities. Second, claims payments decreased $4.2 million. Partially offsetting these            items was a reduction in investment income and premiums of $2.3 million and an increase            in commissions paid of $0.8 million.

Net cash            provided from investing activities was $58.0 million, up from $31.5 million for the            same period in 2006. Purchases of fixed maturities and equity securities were $160.9            million for the six months, up from $155.1 million in the prior year. Mortgage loan            originations increased $1.3 million for the six months but purchases of real estate            declined $42.5 million, reflecting the large purchases made in the first quarter of            2006. Sales and maturities of fixed maturity and equity securities totaled $179.1            million for the first six months, a 19% decrease versus a year ago. Sales of real            estate investments were $16.4 million versus $2.3 million a year ago. Mortgage loan            maturities and principal paydowns were $26.3 million, a decrease of $2.2 million            compared with 2006. In addition, the sale of Generations Bank resulted in proceeds of            $10.1 million.

Net cash used            for financing activities was $62.4 million for the six months, compared with $48.4            million a year ago. This change was primarily the result of four items. First,            withdrawals on policyholder account balances net of

**-24-**

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related deposits            was $52.0 million, an increase of $17.4 million over the prior year. Second, dividends            paid to stockholders were $30.1 million, reflecting both the one-time special dividend            paid in the first quarter of 2007 and the regular quarterly dividends, compared with            the regular quarterly dividends of $6.4 million in 2006. Third, partially offsetting            these decreases to cash was an increase of $20.8 million in other deposits, primarily            from the Company’s retained asset program. Finally, the Company had a $7.5            million increase in net proceeds from borrowings compared with the prior            year.

The above            information excludes net proceeds from variable insurance products. These proceeds are            segregated into separate accounts and are not held in the Company’s general            investments because the policyholders, rather than the Company, assume the underlying            investment risks.

***Debt and            Short-term Borrowing***

The Company and            certain subsidiaries have access to borrowing capacity through their membership            affiliation with the Federal Home Loan Bank of Des Moines (FHLB). At June 30, 2007,            outstanding balances totaled $12.7 million in maturities of less than one            year.

Borrowings            totaled $12.7 million at June 30, 2007, down $2.0 million from year end 2006. The            decrease in borrowings is due to reductions in borrowing from the FHLB. The Company has            unsecured revolving lines of credit of $60.0 million with two major commercial banks            with no balances outstanding.

***Capital            Resources***

The Company            considers existing capital resources to be more than adequate to support the current            level of business activities.

The following table shows the            capital adequacy for the Company.

|                                                                                        |   |                                                       |      |                                    |   |      |   |
|---------------------------------------------------------------------------------------------|--------|------------------------------------------------------------|-----------|-----------------------------------------|--------|-----------|--------|
|                                                                                        |   | June                        30                        2007 |      | December 31                        2006 |   |
|                                                                                        |   |                                                            |      |                                         |   |
| Total assets less                        separate accounts                                  |   | $                                                          | 3,931,869 |                                    | $      | 4,059,673 |   |
| Total                        stockholders’ equity                                     |   |                                                       | 652,911   |                                    |   | 684,304   |   |
| Ratio of                        stockholders’ equity to assets less separate accounts |   |                                                       | 17        | %                                       |   | 17        | %      |

The ratio of            equity to assets less separate accounts has remained relatively constant. Unrealized            investment losses on available for sale securities, which are included as a part of            stockholders’ equity, totaled $19.9 million at June 30, 2007 (net of related            taxes, policyholder account balances and deferred acquisition costs). This represents a            decrease of $21.1 million from year-end 2006.

Stockholders’ equity at June            30, 2007 decreased $31.4 million from year-end 2006. The decrease was largely due to            the payment of stockholder dividends of $30.1 million and a decrease in the unrealized            investment losses, net of applicable taxes, of $21.1 million. These decreases were            partially offset by net income of $20.1 million for the period ended June 30, 2007. In            January 2007, the Company declared a special one-time dividend of $2.00 per share in            addition to the regular quarterly dividend of $0.27 per share. The two dividends            totaled $26.9 million and were paid in February 2007, reducing stockholders’            equity. The Company’s regular quarterly dividend of $0.27 per share was also paid            in the second quarter, reducing stockholders’ equity.

The Company            purchased 11,270 of its shares under the stock repurchase program for $0.6 million            during the first quarter of 2007. However, no purchases were made during the second            quarter. Under this program, the Company may purchase up to one million shares on the            open market during 2007.

On July 30,            2007, the Board of Directors declared a quarterly dividend of $0.27 per share,            unchanged from the prior year, that will be paid August 14, 2007 to stockholders of            record as of August 9, 2007.

Current            legislative activities are not expected to have a significant impact on the ongoing            operations of the Company.

**-25-**

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**Item            3.Quantitative and Qualitative Disclosures About Market Risk**

Market risks have not changed            materially from those disclosed in the Company’s 2006 Annual Report on Form            10-K.

**Item            4.Controls and Procedures**

As required by            Exchange Act Rule 13a-15(b), Kansas City Life Insurance Company management, including            the Chief Executive Officer and Chief Financial Officer, conducted an evaluation as of            the end of the period covered by this report, of the effectiveness of the            Company’s disclosure controls and procedures as defined in Exchange Act Rule            13a-15(e). Based on that evaluation, the Chief Executive Officer and Chief Financial            Officer concluded that the Company’s disclosure controls and procedures were            effective as of the end of the period covered by this report. As required by Exchange            Act 13a-15(d), Kansas City Life Insurance Company management, including the Chief            Executive Officer and Chief Financial Officer, also conducted an evaluation of the            Company’s internal control over financial reporting to determine whether any            changes occurred during the period covered by this report that have materially            affected, or are reasonably likely to materially affect the Company’s internal            control over financial reporting. Based on that evaluation, there has been no such            change during the period covered by this report.

**-26**-

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**Part II:            Other Information**

**Item            1.Legal Proceedings**

The life            insurance industry, including the Company and its subsidiaries, has been subject to an            increase in litigation in recent years. Such litigation has been pursued on behalf of            purported classes of insurance purchasers, often questioning the conduct of insurers in            the marketing of their products.

In addition to            the above, the Company and its subsidiaries are defendants in, or subject to other            claims or legal actions. Some of these claims and legal actions are in jurisdictions            where juries are given substantial latitude in assessing damages, including punitive            damages. Although no assurances can be given and no determinations can be made at this            time, management believes that the ultimate liability, if any, with respect to these            other claims and legal actions would have no material effect on the Company’s            business, results of operations or financial position.

**-27-**

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**Item            5.Other Information**

|                                                            |                                                                         |
|-----------------------------------------------------------------|------------------------------------------------------------------------------|
| **3520 Broadway,                        Kansas City, MO 64111** | **Contact:**                        Tracy W. Knapp, Chief Financial Officer, |
|                                                            | (816) 753-7299,                        Extension 8216                        |

**For Immediate Release:**            August 3, 2007, press release reporting financial results for the second quarter of            2007.

**Kansas City            Life Announces Second Quarter 2007 Results**

Kansas City Life            Insurance Company reported a 17% increase in net income for the quarter ended June 30,            2007 relative to the prior year. The Company earned $11.8 million or $1.00 of net            income per share in the second quarter compared with $10.1 million or $0.85 of net            income per share in the same period of 2006. Net income for the six months increased            16% to $20.1 million or $1.70 per share, compared with $17.3 million or $1.45 per share            one year earlier.

Improvements in            the Company’s second quarter included an increase in premiums of 2% and a decline            in benefits and expenses of 6%. The improvement in net income for the six-month period            was primarily the result of an increase in realized investment gains of $3.5 million            and a $6.1 million reduction in benefits and expenses.

The increase in            premiums during the second quarter was primarily due to increased sales of immediate            annuities. Sales of life insurance products were mixed, as new universal life deposits            increased 11% and 13% for the quarter and six months, respectively, and new individual            life insurance premiums declined for both periods.

The improved            benefit and expense results were primarily due to mortality experience, interest            credited to policyholder account balances and changes to amortization of deferred            acquisition costs and value of business acquired. Death benefits, after consideration            of reinsurance, declined for both the quarter and six months. Interest credited was            reduced in both periods, as interest sensitive account balances declined. Amortization            expense declined $4.5 million for the quarter and $4.7 million for the six months, as            adjustments were made to the schedules for deferred costs associated with sales of            policies and the value of business acquired through acquisitions. The adjustments to            amortization expense were primarily due to improved mortality and interest margin            experience.

We continue to            benefit from several initiatives focusing primary growth strategies on our individual            life insurance business. The Company has experienced growth in sales from new general            agents and third-party marketing agreements. New product development and continued            recruiting of general agents in key markets provide promise for continued organic            growth.

Additionally,            the Kansas City Life Board of Directors approved a quarterly dividend of $0.27 per            share to be paid August 14, 2007, to shareholders of record as of August 9,            2007.

Kansas City Life            Insurance Company (NASDAQ: KCLI) was established in 1895 and is based in Kansas City,            Missouri. The Company’s primary business is providing financial protection            through the sale of life insurance and annuities. The Company’s revenues were            $448.4 million in 2006, and assets and life insurance in force were $4.5 billion and            $31.3 billion, respectively, as of December 31, 2006. The Company and its affiliates            operate in 49 states and the District of Columbia. Please refer to the Company’s            Form 10-Q at www.kclife.com.

*(Continued on            next page)*

**-28**-

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|                                               |
|----------------------------------------------------|
| Kansas City Life                        Announces  |
| Second Quarter 2007                        Results |
| August 3, 2007; Page                        Two    |

**KANSAS CITY            LIFE INSURANCE COMPANY            CONDENSED CONSOLIDATED INCOME STATEMENT****(Unaudited)**            (amounts in thousands, except share data)

|                                                           |   |                                         |       |                                                                   |   |       |   |   |       |   |   |       |   |
|----------------------------------------------------------------|--------|----------------------------------------------|------------|------------------------------------------------------------------------|--------|------------|--------|--------|------------|--------|--------|------------|--------|
|                                                           |   | Quarter ended                        June 30 |       | Six                        months ended                        June 30 |   |
|                                                           |   | 2007                                         |       | 2006                                                                   |   | 2007       |   | 2006   |       |
|                                                           |   |                                              |       |                                                                        |   |            |   |        |       |
|                                                           |
| Revenues                                                       |   | $                                            | 109,885    |                                                                   | $      | 112,519    |   | $      | 222,917    |   | $      | 223,503    |   |
|                                                           |   |                                              |            |                                                                   |        |            |   |        |            |   |        |            |   |
|                                                           |   |                                         |       |                                                                   |   |       |   |   |       |   |   |       |   |
| Net income                                                     |   | $                                            | 11,812     |                                                                   | $      | 10,109     |   | $      | 20,118     |   | $      | 17,298     |   |
|                                                           |   |                                              |            |                                                                   |        |            |   |        |            |   |        |            |   |
|                                                           |   |                                         |       |                                                                   |   |       |   |   |       |   |   |       |   |
|                                                           |   |                                         |       |                                                                   |   |       |   |   |       |   |   |       |   |
| Net income per share,                        basic and diluted |   | $                                            | 1.00       |                                                                   | $      | 0.85       |   | $      | 1.70       |   | $      | 1.45       |   |
|                                                           |   |                                              |            |                                                                   |        |            |   |        |            |   |        |            |   |
|                                                           |   |                                         |       |                                                                   |   |       |   |   |       |   |   |       |   |
| Dividends                        paid                          |   | $                                            | 0.27       |                                                                   | $      | 0.27       |   | $      | 2.54       |   | $      | 0.54       |   |
|                                                           |   |                                              |            |                                                                   |        |            |   |        |            |   |        |            |   |
|                                                           |   |                                         |       |                                                                   |   |       |   |   |       |   |   |       |   |
| Average number of                        shares outstanding    |   |                                         | 11,858,378 |                                                                   |   | 11,877,907 |   |   | 11,856,947 |   |   | 11,893,746 |   |

**-29-**

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**Item            6.****Exhibits.**

|   |                                 |   |                        |
|--------|--------------------------------------|--------|-----------------------------|
|   | (a)                        Exhibits: |   |
|   |
|   |                                 | 31(a)  | Section 302 Certification.  |
|   |
|   |                                 | 31(b)  | Section 302 Certification.  |
|   |
|   |                                 | 32(a)  | Section 1350 Certification. |

**-30-**

----

**SIGNATURES**

Pursuant to the            requirements of the Securities Exchange Act of 1934, the registrant has duly caused            this report to be signed on its behalf by the undersigned thereunto duly            authorized.

|   |                                                          |
|--------|---------------------------------------------------------------|
|   | **KANSAS CITY LIFE                        INSURANCE COMPANY** |
|   |                                                               |
|   | (Registrant)                                                  |

|                                                                                                       |
|------------------------------------------------------------------------------------------------------------|
| /s/R. Philip                        Bixby                                                                  |
|                                                                                                            |
| R. Philip                        Bixby                                                                     |
| President, Chief                        Executive Officer                        and Chairman of the Board |
|                                                                                                       |

|                                                  |
|-------------------------------------------------------|
| /s/Tracy W.                        Knapp              |
|                                                       |
| Tracy W.                        Knapp                 |
| Senior Vice                        President, Finance |

Date: July 30, 2007

-**31**-

----