# United States

Securities
and Exchange Commission

Washington,
D.C. 20549

# Form 10-Q

# Quarterly
Report Under Section 13 or 15 (d) of the

Securities
Exchange Act of 1934

# For the
Quarter ended September 30, 2004

# Commission
File No. 2-40764

# Kansas City
Life Insurance Company

3520 Broadway

Kansas City,
Missouri 64111-2565

# Phone: (816) 753-7000

# IRS Number:
44-0308260

# Incorporated
in the State of Missouri

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, and (2) has been subject to
such filing requirements for the past 90 days.

`Yes    X                       No______`

Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the most recent date available.

`Class                                  Outstanding October 21, 2004
Common Stock, $1.25 par value                                                 11,939,223 shares`

# KANSAS CITY LIFE INSURANCE COMPANY
                                                           TABLE OF CONTENTS

`Part I.  Financial Information..................................................................... 3

Item 1.  Financial Statements...................................................................... 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................................24

Item 4.  Controls and Procedures...................................................................25


Part II. Other Information.........................................................................26

Item 1.  Legal Proceedings.........................................................................26

Item 5.  Other Information.........................................................................27

Item 6.  Exhibits..................................................................................29

Signatures.........................................................................................30`

## Part I
Financial InformationItem 1.  
Financial Statements

KANSAS CITY LIFE INSURANCE COMPANY
               CONSOLIDATED BALANCE SHEETS
        (amounts in thousands, except share data)

`September 30       December 31
                                                                 2004               2003      
ASSETS                                                       (Unaudited)
Investments:
     Fixed maturities available for sale, at fair value   $     2,985,176    $      2,814,485
     Equity securities available for sale, at fair value           64,939              63,808
     Mortgage loans                                               418,237             456,656
     Real estate                                                  104,856             112,691
     Policy loans                                                 109,710             114,420
     Short-term investments                                        12,433              71,823
     Other investments                                              1,817                 903 
             Total investments                                  3,697,168           3,634,786

Cash                                                                  371              20,029
Accrued investment income                                          42,542              39,132
Deferred acquisition costs                                        234,449             241,057
Value of business acquired                                        100,494             106,334
Reinsurance recoverable                                           153,839             151,577
Other assets                                                       52,800              54,306
Separate account assets                                           318,696             304,691 
             Total assets                                 $     4,600,359    $      4,551,912 
                                                                                              

LIABILITIES
Future policy benefits                                    $       873,070    $        872,114
Policyholder account balances                                   2,282,197           2,239,223
Policy and contract claims                                         32,425              33,012
Other policyholder funds                                           98,339             101,084
Notes payable                                                     110,865             133,670
Income taxes                                                       43,272              36,918
Other liabilities                                                 176,336             186,762
Separate account liabilities                                      318,696             304,691 
             Total liabilities                                  3,935,200           3,907,474 

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                                         23,990              23,310
Retained earnings                                                 703,685             688,800
Accumulated other comprehensive income                             28,720              23,418
Less treasury stock, at cost (2004 - 6,560,208 shares;
     2003 - 6,572,087 shares)                                    (114,357)           (114,211)
             Total stockholders' equity                           665,159             644,438 

             Total liabilities and stockholders' equity   $     4,600,359    $      4,551,912`

See accompanying Notes to Consolidated Financial Statements.

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

`Quarter ended                Nine Months ended
                                                                 September 30                  September 30
                                                              2004         2003            2004           2003     
REVENUES
Insurance revenues:
     Premiums                                           $     49,209   $     57,960    $   143,579    $    159,590
     Contract charges                                         28,797         29,578         87,327          80,943
     Reinsurance ceded                                       (13,802)       (14,784)       (40,662)        (36,194)
             Total insurance revenues                         64,204         72,754        190,244         204,339
Investment revenues:
     Net investment income                                    48,874         51,273        147,992         144,632
     Realized investment gains (losses)                        2,809         (5,129)         4,336         (36,132)
Other revenues                                                 1,927          2,452          6,195           7,358 
             Total revenues                                  117,814        121,350        348,767         320,197 

BENEFITS AND EXPENSES
Policyholder benefits                                         44,052         57,349        140,279         159,103
Interest credited to policyholder account balances            25,856         24,629         73,203          66,767
Amortization of deferred acquisition costs
     and value of business acquired                           10,100          9,880         30,292          28,394
Operating expenses                                            22,818         25,327         72,428          74,799 
             Total benefits and expenses                     102,826        117,185        316,202         329,063 

Income (loss) before income tax expense (benefit)             14,988          4,165         32,565          (8,866)

Income tax expense (benefit)                                   3,455         (3,563)         7,915         (10,671)

NET INCOME                                              $     11,533   $      7,728    $    24,650    $      1,805 
                                                                                                                   

Basic and diluted earnings per share:
     Net income                                         $       0.97   $       0.65    $      2.07    $       0.15`

See accompanying Notes to Consolidated Financial Statements.

KANSAS CITY LIFE INSURANCE COMPANY
                    CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)
                       (amounts in thousands)

`Nine Months ended
                                                                          September 30       
                                                                       2004           2003   
OPERATING ACTIVITIES
Net cash provided                                                $     27,169   $     54,822 

INVESTING ACTIVITIES
Purchases of investment securities:
     Fixed maturities                                                (627,035)      (872,111)
     Equity securities                                                 (4,657)        (3,376)
Sales of investment securities:
     Fixed maturities                                                 120,880        131,734
     Equity securities                                                  3,051         11,952
Maturities and principal paydowns of investment securities:
     Fixed maturities                                                 338,844        553,068
     Equity securities                                                    265          5,780
Purchases of other investments                                        (50,516)      (121,960)
Sales, maturities and principal paydowns of other investments         103,120        128,745
Net sales of short-term investments                                    59,390         35,904
Net additions to property and equipment                                (1,345)          (690)
Insurance business acquired                                                 -        (52,264)
         Net cash used                                                (58,003)      (183,218)

FINANCING ACTIVITIES
Proceeds from borrowings                                                3,960         16,267
Repayment of borrowings                                               (26,765)          (587)
Deposits on policyholder contracts                                    205,720        256,304
Withdrawals from policyholder account balances                       (152,096)      (126,651)
Net transfers to separate accounts                                     (8,449)        (5,289)
Change in other deposits                                               (1,963)         5,363
Cash dividends to stockholders                                         (9,765)        (9,682)
Net disposition (acquisition) of treasury stock                           534         (2,787)
         Net cash provided                                             11,176        132,938 

Increase (decrease) in cash                                           (19,658)         4,542
Cash at beginning of year                                              20,029         14,645 

         Cash at end of period                                   $        371   $     19,187`

See accompanying Notes to Consolidated Financial Statements.

Kansas City
Life Insurance Company

Notes to
Consolidated Financial Statements

                                               (amounts in thousands, except share data)

1.  SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Basis of
Presentation

The unaudited consolidated
financial statements, the accompanying notes to these financial statements and
the accompanying 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). These items have been
prepared in accordance with accounting principles generally accepted in the
United States of America (GAAP) for interim financial reporting and with the
instructions to Form 10-Q of Regulation S-X. Accordingly, they do not include
all of the disclosures required by GAAP for complete financial statements and as
such, these unaudited interim financial statements should be read in conjunction
with the Companys 2003 Form 10-K and the 2003 Annual Report to
Stockholders. 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 September 30, 2004 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 year results to conform with the current years
presentation.

Insurance
Company Acquisition

On June 30, 2003, the Company
acquired all of the issued and outstanding stock of GuideOne Life Insurance
Company (GuideOne) from GuideOne Financial Group, Inc. and GuideOne Mutual
Company. The purchase price of the acquisition was $59.4 million and added
$393.1 million in assets on the acquisition date, including an identifiable
intangible asset called the value of business acquired (VOBA) of $38.0 million.
The financial position and results of operations of GuideOne have been included
in these financial statements on a GAAP basis using the purchase method of
accounting since July 1, 2003. As of October 1, 2003, GuideOne was merged into
Kansas City Life Insurance Company. For segment reporting purposes, GuideOne is
included in the Kansas City Life - Individual segment.

Significant
Accounting Policies

These significant
accounting policies should be read in conjunction with statements and
disclosures made in the Companys 2003 Form 10-K as filed with the United
States Securities and Exchange Commission.

The preparation of the
consolidated financial statements requires management of the Company to make
estimates and assumptions relating to the reported amounts of assets and
liabilities and the disclosure of contingent assets and liabilities at the date
of the 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.

The Company establishes
liabilities for amounts payable under insurance policies, including traditional
life insurance, annuities and accident and health insurance. Generally, amounts
are payable over an extended period of time and the profitability of the
products is dependent on the assumptions used in the pricing of the products.
Principal assumptions used in pricing policies and in the establishment of
liabilities for future policy benefits are mortality, morbidity, expenses,
persistency, investment returns and inflation. Differences between actual
experience and assumptions used in the pricing of these policies and in the
establishment of liabilities may result in variability of net income.

Policyholder account
balances include universal life insurance, fixed deferred annuity contracts and
investment-type contracts. The account balances for universal life contracts are
equal to cumulative premiums, less contract charges, plus interest credited. The
account balances for fixed deferred annuities and investment contracts are equal
to the cumulative deposits less any applicable contract charges plus interest
credited. The profitability of these products is also dependent on principal
assumptions similar to traditional insurance products, and differences between
actual experience and pricing assumptions may result in variability of net
income.

Deferred acquisition costs
(DAC), principally agent commissions and other selling, selection and issue
costs, which vary with and are directly related to the production of new
business, are capitalized as incurred. These deferred costs are then amortized
in proportion to future premium revenues or the expected future profits of the
business, depending upon the type of product. Profit expectations are based upon
assumptions of future interest spreads, mortality margins, expense margins and
policy and premium persistency experience. These assumptions involve judgment
and are compared to actual experience on an ongoing basis. If it is determined
that the assumptions related to the profit expectations for interest sensitive
and variable insurance products should be revised, the impact of the change is
reported in the current periods income as an unlocking adjustment.

When new business is
acquired, a portion of the purchase price is allocated to a separately
identifiable intangible asset, called the value of business acquired (VOBA).
VOBA is established as the actuarially determined present value of future gross
profits of the business acquired and is amortized in proportion to future
premium revenues or the expected future profits, depending on the type of
business acquired. Similar to DAC, the assumptions regarding future experience
can affect the carrying value of VOBA, including interest spreads, mortality,
expense margins and policy and premium persistency experience. Significant
changes in these assumptions can impact the carrying balance of VOBA and produce
changes that must be reflected in the current periods income as an
unlocking adjustment.

The Company maintains a
diversified securities portfolio. The Companys securities available for
sale are carried at fair value in the Companys balance sheet. The Company
receives fair values for its securities portfolio from a variety of external
sources. Various measures have been taken to manage the portfolios credit
and interest rate risks, as discussed in the Companys 2003 Form 10-K and
the 2003 Annual Report to Stockholders. The Company performs a review of its
securities fair values on an ongoing basis to determine changes in the
value of the portfolio. Several factors are analyzed in evaluating these
securities, including an analysis of the issuing company, its industry,
valuation levels and subsequent developments. Based upon these inputs, the
Company establishes its securities values in accordance with GAAP.

Premiums for traditional
life insurance products are reported as revenue when due. Premiums on accident
and health, disability and dental insurance are reported as earned ratably over
the contract period in proportion to the amount of insurance protection
provided. A reserve is provided for the portion of premiums written which
relates to unexpired terms of coverage.

Deposits related to
universal life, fixed deferred annuity contracts and investment-type products
are credited to policyholder account balances. Revenues from such contracts
consist of amounts assessed against policyholder account balances for mortality,
policy administration and surrender charges, and are recognized in the period in
which the services are provided.

In the normal course of
business, the Company cedes risks to other insurers primarily to protect the
Company against adverse fluctuations in mortality experience. The Company also
assumes risks ceded by other companies. Reinsurance is effected on individual
risks and through various pooling arrangements. Business is reinsured primarily
through yearly renewable term and coinsurance agreements. Under yearly renewable
term insurance, the Company pays annual premiums and the reinsurer reimburses
claims paid related to this coverage. Under coinsurance, the reinsurer receives
a proportionate share of the premiums less applicable commissions and is liable
for a corresponding share of policy benefits. The Company remains contingently
liable if the reinsurer should be unable to meet obligations assumed under the
reinsurance contract.

Reinsurance recoverable
includes amounts related to paid benefits and estimated amounts related to
unpaid policy and contract claims, future policy benefits and policyholder
account balances. The cost of reinsurance is accounted for over the terms of the
underlying reinsured policies using assumptions consistent with those used to
account for the policies.

New Accounting
Pronouncements

Financial Accounting
Standards Board (FASB) Interpretation (FIN) 46, Consolidation of Variable
Interest Entities, was issued in January 2003. This is an interpretation
of Accounting Research Bulletin (ARB) No. 51, Consolidated Financial
Statements. This interpretation requires the consolidation of entities in
which an enterprise absorbs a majority of the entitys expected losses,
receives a majority of the entitys expected residual returns, or both, as
a result of ownership, contractual terms or other financial interests in the
entity. This interpretation was adopted July 1, 2003 and had no material impact.
Subsequently, in December 2003, the FASB issued a revision known as FIN 46R,
which replaces FIN 46. The Company is required to apply FIN 46R to variable
interest entities created after December 31, 2003. This revised interpretation
was adopted on January 1, 2004, with no material impact.

Statement of Position (SOP)
03-01, Accounting and Reporting by Insurance Enterprises for Certain
Nontraditional Long-Duration Contracts and for Separate Accounts, was
issued in July 2003 by the Accounting Standards Executive Committee of the
American Institute of Certified Public Accountants. The SOP addresses: 1)
separate account presentation; 2) accounting for an insurance companys
proportionate interest in separate accounts; 3) transfers of assets from the
general account to a separate account; 4) valuation of certain insurance
liabilities and policy features such as guaranteed minimum death benefits and
annuitization benefits; and 5) accounting for sales inducements. This SOP was
adopted on January 1, 2004, with no material impact.

In March 2004, the Emerging
Issues Task Force reached a consensus on Issue No. 03-1 The Meaning of
Other-Than-Temporary Impairment and Its Application to Certain Investments
(EITF 03-1). EITF 03-1 provides guidance for determining the meaning
of other-than-temporarily impaired and its application to certain
debt and equity securities within the scope of Statement of Financial Accounting
Standards No. 115 Accounting for Certain Investments in Debt and Equity
Securities (SFAS 115) and investments accounted for under the
cost method. The guidance requires that investments which have declined in value
due to credit concerns or solely due to changes in interest rates must be
recorded as other-than-temporarily impaired unless the Corporation can assert
and demonstrate its intention to hold the security for a period of time
sufficient to allow for a recovery of fair value up to or beyond the cost of the
investment, which might mean maturity. This issue also requires disclosures
assessing the ability and intent to hold investments in instances in which an
investor determines that an investment with a fair value less than cost is not
other-than-temporarily impaired. The guidance for evaluating whether an
investment is other-than-temporarily impaired is to be applied to reporting
periods beginning after June 15, 2004.

On September 8, 2004, the
FASB agreed to a FASB Staff Proposal to delay the effective date for the
application guidance contained in EITF Issue 03-01. The proposal will be open
for comment for 15 days and essentially removed the September 30, 2004 effective
date. The effective date of paragraph 16 of this issue, which deals with debt
securities that are impaired solely because of interest rate and/or sector
spread increases, has been delayed until a FASB staff position addressing this
paragraph has been issued.

All other Standards and
Interpretations of those Standards issued during 2004 did not relate to
accounting policies and procedures pertinent to the Company at this time.

Comprehensive
Income

Comprehensive income is
comprised of net income and other comprehensive income, which includes
unrealized investment gains or losses on securities available for sale and the
change in the additional minimum pension liability. For the third quarter,
comprehensive income was $47.5 million in 2004, and comprehensive loss was $8.0
million in 2003. Excluding the third quarter 2004 net income of $11.5 million,
other comprehensive income was $35.9 million. This other comprehensive income
amount consisted of unrealized investment gains on securities, which was net of
reclassification adjustments of investment losses realized in net income, and
net of applicable deferred acquisition costs and income taxes.

For the nine months,
comprehensive income was $30.0 million in 2004, and comprehensive income was
$52.7 million for 2003. Excluding the nine months ended 2004 net income of $24.7
million, other comprehensive income was $5.3 million. This other comprehensive
income amount consisted of unrealized investment gains on securities, which was
net of reclassification adjustments of investment losses realized in net income,
and net of applicable deferred acquisition costs and income taxes.

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
were 11,928,520 and 11,949,992 for the nine months of 2004 and 2003,
respectively.

Income Taxes

The third quarter income
tax was an expense of $3.5 million or 23.1% of income before tax for 2004,
versus a benefit $3.6 million or 85.5% of income before tax for the prior year
period. The income tax for the first nine months was an expense of $7.9 million or
24.3% of income before tax and a benefit of $10.7 million or 120.4% of loss
before tax in 2004 and 2003, respectively.

The income tax rate in both
years was reduced by tax credits generated from the Companys investments
in affordable housing. The effect of the affordable housing credits on the
effective tax rate was a benefit of $1.5 million or 9.8% of income before tax
and a benefit of $1.1 million or 27.5% for third quarters of 2004 and 2003,
respectively. The effect of the affordable housing credits for the first nine
months was a benefit of $3.4 million or 10.5% of income before tax and a benefit
of $2.7 million or 30.1% of loss before tax for 2004 and 2003, respectively.

As necessary, the Company
will establish a contingent tax liability to provide for potential challenges by
taxing jurisdictions of the Companys tax filings. In 2003, the
Companys effective tax rate was reduced by the reversal of a contingent
tax liability relating to 1999, a tax year that closed in 2003. The reversal of
previously accrued taxes was a benefit of $3.1 million or 73.8% of income before
tax for the third quarter of 2003 and a benefit of $4.1 million or 45.8% of loss
before tax for the first nine months of 2003.

2.  SEGMENT INFORMATION

Company operations have
been classified and summarized into four reportable segments. The segments,
while generally classified along Company lines, are based upon distribution
method, product portfolio and target market. The Parent Company is divided into
two segments. The Kansas City Life - Individual segment consists of sales of
variable life and annuities, interest sensitive products and traditional life
insurance products through a nationwide sales force of independent general
agents. GuideOne is included in the Kansas City Life  Individual Segment.
The Kansas City Life - Group segment consists of sales of group life,
disability, stop loss, dental products and administrative services only. Group
segment products and services are marketed by a nationwide sales force of
independent general agents and group brokers, along with third party marketing
arrangements. The Sunset Life segment consists of sales of interest sensitive
and traditional products through a nationwide sales force of independent general
agents. The Old American segment sells final expense insurance products
nationwide through its general agency system with exclusive territories, using
direct response marketing to supply agents with leads.

Separate investment
portfolios are maintained for each of the companies. However, investments are
allocated to the group 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 solely in the United States and no individual
customer accounts for 10% or more of the Companys revenue.

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

`Kansas City Life          Sunset        Old
                                     Individual     Group         Life       American       Total

Insurance revenues:
            Third quarter:    2004  $    32,930  $  10,659    $    3,744   $   16,871    $    64,204
                              2003       37,582     13,277         4,552       17,343         72,754
            Nine months:      2004  $    96,108  $  32,280    $   10,973   $   50,883    $   190,244
                              2003      103,672     36,363        12,259       52,045        204,339

Net investment income:
            Third quarter:    2004  $    38,882  $      81    $    6,673   $    3,238    $    48,874
                              2003       40,788         66         7,078        3,341         51,273
            Nine months:      2004  $   117,120  $     230    $   20,859   $    9,783    $   147,992
                              2003      111,739        220        22,171       10,502        144,632

Net income (loss):
            Third quarter:    2004  $     8,713  $    (624)   $    1,380   $    2,064    $    11,533
                              2003        4,456       (993)        2,426        1,839          7,728
            Nine months:      2004  $    17,031  $  (1,974)   $    5,292   $    4,301    $    24,650
                              2003         (636)    (2,644)        3,550        1,535          1,805`

3.  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.

4.  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 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
our business, financial position or results of operations.

5.  COMMITMENTS

In the normal course of
business the Company has open purchase and sale commitments. At September 30,
2004, the Company had open purchase commitments of $20.2 million and open sales
commitments of $2.8 million. Subsequent to September 30, 2004, the Company
entered into purchase commitments of $8.4 million. Typically, these purchase and
sales commitments are for securities, mortgage loans, real estate, affordable
housing and other investments. The ultimate financial impact of these
commitments is not presently determinable.

The Company entered into a
definitive agreement to sell its bank subsidiary, Generations Bank, for $10.1
million to Generations Bancorp, with an expected gain on the sale of
approximately $1.9 million. This transaction is subject to regulatory approval
by the Office of Thrift Supervision and is expected to close in early 2005.

6.  DISCONTINUED OPERATIONS

On October 25, 2004, the
Company entered into a definitive agreement to sell its bank subsidiary,
Generations Bank, for $10.1 million to Generations Bancorp, with an expected
gain on the sale of approximately $1.9 million. This transaction is subject to
regulatory approval by the Office of Thrift Supervision and is expected to close
in early 2005. The bank subsidiary and the results of its operations are not
significant to the financial statements of the Company and are not disclosed
separately.

7.  PENSIONS AND OTHER POSTRETIREMENT BENEFITS

Components of net periodic
benefit cost:

`Pension Benefits          Other Benefits      
                                            Quarter ended            Quarter ended
                                             September 30             September 30       
                                           2004        2003          2004        2003   


Service cost                          $     554      $   584       $   193      $   189
Interest cost                             1,821        1,804           376          352
Expected return on plan assets           (1,856)      (1,610)          (17)         (19)
Amortization of:
    Unrecognized net loss                   718          830            23            7
    Unrecognized prior service cost        (162)        (162)            -            - 
Net periodic benefit cost             $   1,075      $ 1,446       $   575      $   529`

`Pension Benefits            Other Benefits   
                                            Nine Months ended        Nine Months ended
                                              September 30             September 30     
                                           2004        2003          2004         2003  

Service cost                          $   1,661      $ 1,751       $   579      $   566
Interest cost                             5,462        5,411         1,127        1,055
Expected return on plan assets           (5,568)      (4,831)          (50)         (57)
Amortization of:
    Unrecognized net loss                 2,153        2,491            69           20
    Unrecognized prior service cost        (485)        (485)            -            - 
Net periodic benefit cost             $   3,223      $ 4,337       $ 1,725      $ 1,584`

On December 8, 2003, the
Medicare Prescription Drug, Improvement and Modernization Act of 2003 (the
Act) was signed into law. This Act introduces a prescription drug benefit
under Medicare (Medicare Part D), as well as a federal subsidy to sponsors of
retiree health benefits. On May 19, 2004, the FASB issued Staff Position No.
106-2, Accounting and Disclosure Requirements Related to the Medicare
Prescription Drug Modernization Act of 2003 (FSP 106-2). FSP
106-2 provides guidance on the accounting for the effects of the Act. In
accordance with the deferral provision of FSP 106-2, our benefit obligations and
net periodic postretirement benefit costs do not reflect any amount associated
with the subsidy as we have not determined that the benefits provided by the
plan are actuarially equivalent to Medicare. The adoption of FSP No. 106-2 is
not expected to have a material effect on the Companys consolidated
financial statements.

## 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, which may affect the Company's ability to sell its products;
- 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

In the third quarter of
2004, the Companys net income increased $3.8 million versus the prior
year, to a total of $11.5 million. Net income per share increased to $0.97 per
share versus $0.65 per share in last years third quarter. For the first
nine months of 2004, net income increased $22.8 million to equal $24.7 million,
and net income per share increased to $2.07 per share compared to $0.15 per
share in the prior year. The largest factor in the increase was the improvement
in realized investment gains and losses. In the third quarter of 2004, the
Company recorded realized investment gains of $2.8 million, a $7.9 million
increase over the prior years third quarter loss. For the nine months of
2004, net realized investment gains totaled $4.3 million, versus a net realized
investment loss of $36.1 million in the prior year. This improvement was
primarily the result of a general improvement in the overall economy and credit
markets compared with the prior year. Additionally, increased invested assets,
which resulted from the acquisition of GuideOne and the sizable sales of annuity
products in the prior year, contributed to the improved net investment income
for the nine months. This increase in the volume of assets more than offset the
negative effect of lower interest rates. Also, contributing to the improved
results was improved mortality, as seen through decreased death benefits.
Partially offsetting these improvements was a decrease in premiums, an increase
in amortization of deferred acquisition costs, and an increase in income taxes
(primarily due to prior year reversal of an accrued contingent tax liability).

Sales
The Company measures sales
in terms of new premiums and deposits. Premiums are included in insurance
revenues in the Consolidated Statements of Income, while deposits are shown in
the Consolidated Statements of Cash Flows. 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 and
provides detail by new and renewal deposits. New deposits are also detailed by
product.

There was a decline in premiums  and  deposits  from 2003,  which was largely the result of  decreases  in sales of
deferred and immediate  annuities.  These  declines  were due to a change in consumer  preferences  for  fixed-rate
products in the low  interest  rate  environment  and  changes  made by the  Company to its  deferred  and
immediate  annuity  products and  distribution  efforts.  In August of 2003, the Company  introduced a new deferred
annuity with lower interest  guarantees that replaced  previous  products.  In addition,  the Company has refocused
its  distribution  efforts on agencies that write a balanced mix of life and annuity  products,  which has resulted
in a lower volume of annuity sales.

For the third quarter, new
premiums declined 41%, primarily due to a 51% decrease in immediate annuity
sales. New premiums for the nine months decreased 36% versus last year,
primarily due to a 63% decrease in the sale of immediate annuities. These sales
have been generally slowing since the second half of 2003, due in part to the
Companys emphasis on life insurance sales and changes in the marketplace.

Individual life insurance
sales increased 8% for the third quarter and 14% for the nine months versus
2003. For the third quarter, group life sales decreased 67% and group accident
and health premiums declined 29%. For the nine months, group life sales
decreased 23%, and group accident and health sales increased 15%. Third party
marketing arrangements continue to generate sales in both the long-term
disability and stop loss lines. Renewal premiums declined 1% for the third
quarter but grew 2% in the nine months.

`Quarter ended September 30    
                                                2004     % chg      2003    % chg
New premiums:
     Individual life insurance                $  3,312      8     $  3,054     3
     Immediate annuities                         5,553    (51)      11,239   333
     Group life insurance                          306    (67)         922   251
     Group accident and health insurance         2,550    (29)       3,575     5
     Individual accident and health insurance       98    (93)       1,362     -
       Total new premiums                       11,819    (41)      20,152   118
Renewal premiums                                37,390     (1)      37,808     3
Total premiums                                $ 49,209    (15)    $ 57,960    26`

`Nine Months ended September 30  
                                                2004     % chg      2003    % chg
New premiums:
    Individual life insurance                 $  9,508     14     $  8,377    (7)
    Immediate annuities                         11,860    (63)      31,675   507
    Group life insurance                         1,117    (23)       1,447    70
    Group accident and health insurance          9,721     15        8,463    (6)
    Individual accident and health insurance       406    (70)       1,362     -
       Total new premiums                       32,612    (36)      51,324   113
Renewal premiums                               110,967      2      108,266    (3)
Total premiums                                $143,579    (10)    $159,590    17`

Total new deposits declined
59% for the third quarter and 41% for the nine months, largely due to fixed
deferred annuity sales which decreased 66% in the third quarter and 53% for the
nine months. As mentioned earlier, sales declined for both immediate and fixed
deferred annuities due to the large sales volume in 2003. New deposits on
universal life products increased 10% in the third quarter and 23% for the nine
months. For the third quarter, new variable annuities decreased 37% and new
variable universal life sales decreased 6%. For the nine months, variable
annuity deposits declined 9% and variable universal life deposits increased 7%.
Sales of variable products has remained slow during both the quarter and the
nine months, reflecting the current year negative performance of the equity
markets. Renewal deposits increased 7% for the third quarter and 12% for the
nine months.

`Quarter ended September 30      
                                                  2004     % chg       2003     % chg
New deposits:
    Universal life insurance                 $    2,536      10    $   2,300     101
    Variable universal life insurance               651      (6)         689     (46)
    Fixed deferred annuities                     18,592     (66)      55,158     136
    Variable annuities                            6,931     (37)      11,079     131
       Total new deposits                        28,710     (59)      69,226     126
Renewal deposits                                 37,920       7       35,358      12
Total deposits                               $   66,630     (36)   $ 104,584      69`

`Nine Months ended September 30    
                                                  2004     % chg       2003     % chg
New deposits:
    Universal life insurance                 $    8,083      23    $   6,589      32
    Variable universal life insurance             2,632       7        2,462     (60)
    Fixed deferred annuities                     56,197     (53)     118,319     109
    Variable annuities                           23,133      (9)      25,489      46
       Total new deposits                        90,045     (41)     152,859      80
Renewal deposits                                115,675      12      103,445       3
Total deposits                               $  205,720     (20)   $ 256,304      38`

Insurance Revenues
Insurance revenues consist
of premiums and contract charges, less reinsurance ceded. Insurance revenues
decreased 12% in the third quarter and 7% in the first nine months, largely due
to the decrease in immediate annuity premiums. Life insurance premiums grew 5%
in the third quarter and 8% for the nine months. Individual life premiums
include premiums from the GuideOne acquisition for the nine months in 2004 but
only one quarters results for 2003, consistent with the purchase at June
30, 2003. Sales of traditional life products reflected positive growth for the
quarter and nine months. Annuity sales declined 51% in the third quarter and 63%
for the nine months. Annuity sales were exceptionally strong in the first half
of 2003. Subsequently, the Company has placed more emphasis on life insurance.
Accident and health premiums decreased 28% for the third quarter and 7% for the
nine months. This decline was the result of two factors. First, the purchase of
GuideOne brought with it a student accident and health insurance product that
the Company elected to discontinue. Secondly, the Company terminated a group
dental third party marketing arrangement effective with year end 2003. In
addition, in late 2003, the Company signed an agreement with another third party
marketing provider, principally to sell disability products to broaden and
strengthen these lines. Total premiums decreased 15% in the third quarter and
10% for the nine months.

Contract charges decreased
3% for the third quarter but increased 8% for the nine months. The increase for
the nine months resulted from the addition of GuideOnes portfolio of
universal life and annuity products. Reinsurance ceded decreased 7% in the third
quarter but rose 12% in the nine months.

Insurance revenues may be
affected by the persistency of policyholders, which may be influenced by
economic conditions, as well as competitive forces and fluctuations in mortality
experience. The Companys persistency and mortality experience have been
and continue to be consistent with expectations assumed in pricing over time.
However, the continued volatility of the financial markets influences
consumers preferences. Consumers continue to desire a broad portfolio of
products with safety and competitive return objectives, which the Company
strives to provide. The Companys full range of products, including its
variable insurance products, allows policyholders to participate in both the
equity and fixed income markets; and, interest sensitive and traditional
insurance products combine safety of principal with competitive interest
returns.

Investment Revenues
Net investment income
decreased 5% in the third quarter but increased 2% for the nine months. While
the Companys overall yield declined due to lower available market yields,
the Companys investable assets were greater than a year ago due to both
the acquisition of GuideOne and the significant volume of sales of annuity
products in the prior year.

As discussed above, the
Company recorded realized investment gains for the third quarter of $2.8
million. This was a $7.9 million improvement over realized investment losses of
$5.1 million in the prior year. The Company recorded realized investment gains
for the nine months of $4.3 million, a $40.5 million improvement over a loss of
$36.1 million one year earlier. The Company continues to enhance its portfolio
quality while seeking to maximize its overall returns. The overall improvement
in the economy and credit markets have been the primary reason for the decline
in realized losses. The following table provides detail concerning realized
investment gains and losses for the third quarter and nine-month periods of 2004
and 2003.

`Quarter ended             Nine Months ended
                                                    September 30                September 30       
Realized Investment Gains and Losses              2004         2003           2004          2003   
Gross gains resulting from:
   Sales of investment securities             $  2,306      $     504      $   6,965    $    5,214
   Investment securities called                    337            870            686         1,813
   Sales of real estate                          2,555             81          4,145         1,210 
     Total gross gains                           5,198          1,455         11,796         8,237 
Gross losses resulting from:
   Sales of investment securities               (2,268)        (6,851)        (6,049)      (16,021)
   Write-downs of investment securities              -           (330)          (555)      (28,572)
   Investment securities called                   (114)           (59)        (1,123)         (509)
     Total gross losses                         (2,382)        (7,240)        (7,727)      (45,102)
Amortization of deferred acquisition costs          (7)           656            267           733 
Realized investment gains (losses)            $  2,809      $  (5,129)     $   4,336    $  (36,132)`

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 charging off the loss against income. The Companys analysis identified
no securities with other than temporary impairment in the third quarter and only
$0.6 million in other than temporary declines in value in the nine months. For
the nine month period of 2003, the Company recorded $28.6 million in other than
temporary declines in value, which were largely due to investments in the
airline industry.

The interest rate
environment experienced volatility during the quarter and ended with rates
trending down, which resulted in a general increase in market values at
September 30, 2004. At the end of third quarter 2004 and at year- end 2003, the
Company had investments of $1.0 billion in fair value that had unrealized
losses. The unrealized losses were $21.2 million and $28.9 million as of these
dates, respectively.

Policyholder Benefits and Interest Credited to Policyholder Account Balances
Total policyholder benefits
and interest credited to policyholder account balances decreased 15% or $12.1
million in the third quarter and 6% or $12.4 million in the nine months.
Policyholder benefits decreased in the nine months largely due to lower
immediate annuity sales, which resulted in lower required reserves. This decline
was partially offset by an increase in individual death benefit payments,
primarily due to the GuideOne acquisition and other benefits.

Interest credited to
policyholder account balances increased 5% in the third quarter and 10% in the
nine months. The increase for the nine-month period is largely the result of
interest credited on policyholder account balances received in the GuideOne
acquisition.

Amortization of Deferred Acquisition Costs (DAC) and Value of Business Acquired (VOBA)
For the third quarter of
2004, the amortization of DAC was $8.3 million compared with $8.0 million for
2003. The amortization of DAC for the nine months totaled $24.9 million in 2004
versus $23.3 million in 2003. The nine months increase is largely due to the
unlocking of DAC assumptions in 2003, which reduced the amortization of DAC by
$1.8 million. The Company evaluates the assumptions used in the amortization of
deferred acquisition costs on a regular basis. As warranted by a combination of
historical results and expected future trends, the Company unlocks these
assumptions and accordingly increases or decreases the deferred acquisition
costs. For the first nine months of 2004, the unlocking of DAC assumptions was
not material to the financial statements and for the third quarter, 2004, the
Company did not unlock any DAC assumptions.

The amortization of VOBA
was $1.8 million in the third quarter of 2004 and $1.9 million for the same
period in 2003. VOBA amortization was $5.4 million for the first nine months of
2004 compared to $5.1 million in 2003. Additional VOBA of $38.0 million was
established on June 30, 2003 due to the acquisition of GuideOne.

Operating Expenses
Operating expenses
decreased 3% in the third quarter of 2004 but were flat for the nine months due
to the partial year impact of GuideOne in 2003. The Companys consolidation
of the GuideOne operations into the home office is on schedule and is targeted
to be completed in the fourth quarter. Certain cost savings have been achieved
thus far through staffing consolidations and reductions.

Income Taxes
The third quarter income
tax was an expense of $3.5 million or 23.1% of income before tax for 2004,
versus a benefit of $3.6 million or 85.5% of income before tax for the prior
year period. The income tax for the first nine months was an expense of $7.9
million or 24.3% of income before tax and a benefit of $10.7 million or 120.4%
of loss before tax in 2004 and 2003, respectively.

The income tax rate in both
years was reduced by tax credits generated from the Companys investments
in affordable housing. The effect of the affordable housing credits on the
effective tax rate was a benefit of $1.5 million or 9.8% of income before tax
and a benefit of $1.1 million or 27.5% for the third quarters of 2004 and 2003,
respectively. The effect of the affordable housing credits for the first nine
months was a benefit of $3.4 million or 10.5% of income before tax and a benefit
of $2.7 million or 30.1% of loss before tax for 2004 and 2003, respectively.

As necessary, the Company
will establish a contingent tax liability to provide for potential challenges by
taxing jurisdictions of the Companys. In 2003, the Companys
effective tax rate was reduced by the reversal of a contingent tax liability
relating to 1999, a tax year that closed in 2003. The reversal of previously
accrued taxes was a benefit of $3.1 million or 73.8% of income before tax for
the third quarter of 2003 and a benefit of $4.1 million or 45.8% of loss before
tax for the first nine months of 2003.

## Operating
Results by Segment

The following schedules
provide key supplemental financial information for each of the Companys
four reportable operating segments for the first quarters and first nine months
of 2004 and 2003 and are reconciled to the financial statements contained herein
(in thousands):

`Kansas City Life           Sunset         Old
                                              Individual         Group         Life        American      Total
2004 (third quarter):
Premiums:
    New premiums                             $      6,968    $    2,856     $      87     $   1,908    $   11,819
    Renewal premiums                                8,751        10,713         1,458        16,468        37,390 
Total premiums                                     15,719        13,569         1,545        18,376        49,209
Contract charges                                   23,112             -         5,685             -        28,797
Reinsurance ceded                                  (5,901)       (2,910)       (3,486)       (1,505)      (13,802)
    Total insurance revenues                 $     32,930    $   10,659     $   3,744     $  16,871    $   64,204 
Net investment income                              38,882            81         6,673         3,238        48,874
Realized investment gains (losses)                  3,115             -          (192)         (114)        2,809
Other revenues                                      1,137           556           294           (60)        1,927
Policyholder benefits and interest credited
    to policyholder account balances               46,308         7,440         5,630        10,530        69,908
Expenses and taxes                                 21,043         4,480         3,509         7,341        36,373 
Net income (loss)                            $      8,713    $     (624)    $   1,380     $   2,064    $   11,533 
                                                                                                                  

Deposits:
    New deposits                             $     27,487    $        -     $   1,223     $       -    $   28,710
    Renewal deposits                               30,796             -         7,124             -        37,920 
Total deposits                               $     58,283    $        -     $   8,347     $       -    $   66,630`

`Kansas City Life           Sunset         Old
                                              Individual         Group         Life        American      Total
2003 (third quarter):
Premiums:
    New premiums                             $     13,010    $    4,491     $     712     $   1,939    $   20,152
    Renewal premiums                                8,637        10,789         1,338        17,044        37,808 
Total premiums                                     21,647        15,280         2,050        18,983        57,960
Contract charges                                   23,745             -         5,833             -        29,578
Reinsurance ceded                                  (7,810)       (2,003)       (3,331)       (1,640)      (14,784)
    Total insurance revenues                 $     37,582    $   13,277     $   4,552     $  17,343    $   72,754 
Net investment income                              40,788            66         7,078         3,341        51,273
Realized investment gains (losses)                 (3,295)            -        (1,193)         (641)       (5,129)
Other revenues                                      1,746           657            47             2         2,452
Policyholder benefits and interest credited
    to policyholder account balances               54,670         9,908         6,100        11,300        81,978
Expenses and taxes                                 17,695         5,085         1,958         6,906        31,644 
Net income (loss)                            $      4,456    $     (993)    $   2,426     $   1,839    $    7,728 
                                                                                                                  

Deposits:
    New deposits                             $     66,132    $        -     $   3,094     $       -    $   69,226
    Renewal deposits                               28,113             -         7,245             -        35,358 
Total deposits                               $     94,245    $        -     $  10,339     $       -    $  104,584`

`Kansas City Life           Sunset         Old
                                              Individual         Group         Life        American      Total
2004 (nine months):
Premiums:
    New premiums                             $     16,046    $   10,838     $     300     $   5,428    $   32,612
    Renewal premiums                               27,369        29,484         4,155        49,959       110,967 
Total premiums                                     43,415        40,322         4,455        55,387       143,579
Contract charges                                   70,180             -        17,147             -        87,327
Reinsurance ceded                                 (17,487)       (8,042)      (10,629)       (4,504)      (40,662)
    Total insurance revenues                 $     96,108    $   32,280     $  10,973     $  50,883    $  190,244 
Net investment income                             117,120           230        20,859         9,783       147,992
Realized investment gains (losses)                  4,448             -           220          (332)        4,336
Other revenues                                      3,647         1,828           718             2         6,195
Policyholder benefits and interest credited
    to policyholder account balances              140,318        22,633        16,750        33,781       213,482
Expenses and taxes                                 63,974        13,679        10,728        22,254       110,635 
Net income (loss)                            $     17,031    $   (1,974)    $   5,292     $   4,301    $   24,650 
                                                                                                                  

Deposits:
    New deposits                             $     86,408    $        -     $   3,637     $       -    $   90,045
    Renewal deposits                               92,307             -        23,368             -       115,675 
Total deposits                               $    178,715    $        -     $  27,005     $       -    $  205,720`

`Kansas City Life           Sunset         Old
                                              Individual         Group         Life        American      Total
2003 (nine months):
Premiums:
    New premiums                             $     34,947    $    9,904     $   1,177     $   5,296    $   51,324
    Renewal premiums                               21,304        31,003         4,091        51,868       108,266 
Total premiums                                     56,251        40,907         5,268        57,164       159,590
Contract charges                                   63,687             -        17,256             -        80,943
Reinsurance ceded                                 (16,266)       (4,544)      (10,265)       (5,119)      (36,194)
    Total insurance revenues                 $    103,672    $   36,363     $  12,259     $  52,045    $  204,339 
Net investment income                             111,739           220        22,171        10,502       144,632
Realized investment gains (losses)                (26,142)            -        (6,083)       (3,907)      (36,132)
Other revenues                                      4,854         2,170           258            76         7,358
Policyholder benefits and interest credited
    to policyholder account balances              144,738        26,500        17,774        36,858       225,870
Expenses and taxes                                 50,021        14,897         7,281        20,323        92,522 
Net income (loss)                            $       (636)   $   (2,644)    $   3,550     $   1,535    $    1,805 
                                                                                                                  

Deposits:
    New deposits                             $    140,164    $        -     $  12,695     $       -    $  152,859
    Renewal deposits                               81,406             -        22,039             -       103,445 
Total deposits                               $    221,570    $        -     $  34,734     $       -    $  256,304`

Kansas City Life Insurance Company - Individual Insurance
Insurance revenues for this
segment decreased 12% in the third quarter and 7% in the nine months, primarily
reflecting a decline in immediate annuity premiums. New premiums decreased 54%
for the nine months compared with a year ago, again primarily due to a 62%
decrease in sales of immediate annuity premiums. New individual life premiums
increased 46%.

For the nine months new
deposits decreased 38%, reflecting the decrease in fixed and variable annuity
sales. However, new deposits for universal life increased 47% and variable
universal life increased 7%.

Contract charges decreased
3% in the third quarter but increased 10% for the nine months. The increase in
the nine months was largely due to the addition of the GuideOne portfolio of
universal life and annuity products.

Net investment income for
this segment declined 5% for the third quarter but increased 5% for the nine
months. The increase for the year reflects the growth in investable assets from
the prior year due to the GuideOne acquisition and sales growth, more than
offsetting the impact of a declining interest rate environment in recent
periods. Realized investment gains totaled $3.1 million in the third quarter and
$4.4 million for the nine months of 2004. This is an improvement of $6.4 million
over the third quarter of 2003 and $30.6 million over the first nine months of
2003.

Policyholder benefits and
interest credited to policyholder account balances decreased 15% in the third
quarter and 3% for the nine months relative to 2003 results. Other benefits,
which are included in policyholder benefits, declined 4% for the third quarter
but increased 17% for the nine months compared with 2003. The increase in other
benefits is due, in part, to the high volume of immediate annuity sales in 2003.
Surrender benefits, which are part of policyholder benefits, declined 14% in the
third quarter and 6% for the nine months compared with 2003. Interest credited
to policyholder account balances was flat in the third quarter and increased 11%
in the nine months. The increase in the nine months was driven from the GuideOne
acquired block of business, which added nearly $280 million in policyholder
account balances as of June 30, 2003. Thus, there were nine months of interest
crediting on the GuideOne business acquired during 2004 versus only three months
during 2003.

The amortization of
deferred acquisition cost increased 8% in the third quarter and 7% for the nine
months compared with 2003. This increase is primarily the result of unlocking
DAC assumptions in the prior years second quarter of $1.3 million. The
Company regularly evaluates the assumptions used in the amortization of DAC and
unlocks the assumptions when warranted.

Net income for this segment
increased $4.3 million in the third quarter and $17.7 million for the nine
months versus 2003. As discussed above, these improvements were largely due to
the change in realized investment gains and losses.

Kansas City Life Insurance Company - Group Insurance
Insurance revenues for the
Group insurance segment decreased 20% in the third quarter and 11% for the nine
months. These decreases were largely attributable to lower premiums in the
dental line, which terminated a large third party marketing arrangement at
December 31, 2003. However, the Companys other third party marketing
arrangements produced strong sales of long-term disability products and stop
loss products. Direct premiums from the long-term disability line increased $2.0
million over the nine months last year. The stop loss line, which was
reintroduced as a new product in the fourth quarter of 2003, generated $2.0
million in premiums in the first nine months of 2004. The Company has used
reinsurance in several of its group product lines to achieve improved
profitability. Reinsurance on premiums increased 77% versus 2003, primarily as a
result of changes in the long-term disability and stop loss lines.

Policyholder benefits
decreased 25% in the third quarter and 15% in the nine months of 2004 compared
with 2003. These decreases were primarily due to increased reinsurance ceded
benefits on group disability and stop loss insurance and decreased dental
benefit payments due to the terminated third party marketing arrangement.
Overall, the claims ratio (total benefits divided by total insurance revenues)
for this segment improved versus last year, falling from 73% in 2003 to 70% in
2004.

For the third quarter of
2004, the net loss decreased $0.4 million to $0.6 million. In the first nine
months of 2004, the net loss decreased $0.7 million to $2.0 million.

Sunset Life Insurance Company of America
Insurance revenues for this
segment decreased 18% in the third quarter and 11% for the nine months compared
with 2003. Total life and annuity premiums decreased 25% for the third quarter
and 15% for the nine months, largely due to reduced immediate annuity sales.

Net investment income
declined 6% in both the third quarter and nine months compared with 2003, as a
result of declines in both investable assets and the lower interest rate
environment. However, realized investment losses for the third quarter improved
$1.0 million versus last years third quarter. In the nine months, realized
investment gains of $0.2 million were a $6.3 million improvement over a realized
investment loss of $6.1 million experienced during 2003.

Policyholder benefits
decreased 8% for the third quarter and 6% for the nine months, in large part due
to improved mortality. Additionally, insurance operating expenses declined for
the nine-month period, primarily due to the release of an accrued expense
associated with a legal settlement from 2001.

Net income for this segment
was $1.4 million in the third quarter, a $1.0 million decrease from 2003. The
improvement of realized investment gains was offset by the decrease in insurance
revenues discussed above. However, the change in net income for the third
quarter period was largely due to the tax benefit of $1.5 million recorded in
2003, from the reversal of an accrued contingent tax liability. Net income for
the nine months totaled $5.3 million, a $1.7 million improvement versus the
prior year period. As discussed above, this increase was largely the result of
the change in realized investment gains.

Old American Insurance Company
Insurance revenues
decreased 3% in the third quarter and 2% in the nine months. New life premiums
in this segment decreased 2% in the third quarter but increased 2% in the nine
months. Renewal life premiums decreased 3% in both the third quarter and nine
months. Policyholder benefits decreased 7% for the third quarter versus a year
ago and 8% for the nine months compared with 2003, largely due to improved
mortality experience.

Net investment income
declined 3% in the third quarter and 7% for the nine months compared with 2003,
as a result of declines in both investable assets and the recent interest rate
environment. However, realized investment losses declined $0.5 million in the
third quarter of 2004 and $3.6 million for the nine months compared with 2003.

Net income for this segment
was $2.1 million in the third quarter, an increase from $1.8 million in the
prior year. Net income for the nine months increased $3.6 million versus the
prior year to total $4.3 million. This change largely reflected reduced realized
losses and improved mortality experience.

## Liquidity and
Capital Resources

Liquidity
Statements made in the
Companys Form 10-K and the 2003 Annual Report to Stockholders remain
pertinent, as the Companys liquidity position is materially unchanged from
year-end.

The Company and each
insurance subsidiary meet 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, payments of insurance
benefits, operating expenses, withdrawals from policyholder accounts, costs
related to acquiring new business, dividends and income taxes.

Cash provided from
operations totaled $27.2 million for the nine months ended September 30, 2004,
down from $54.8 million a year ago. This decrease is primarily the result of a
decline in premiums for the first nine months. As described above, premiums
decreased from 2003 levels for immediate annuities, group accident and health
(specifically related to the terminated marketing arrangement) and individual
accident and health.

Net cash used in investing
activities was $58.0 million for the nine months, which was down from $183.2
million in 2003. Cash resulting from investment maturities and principal
paydowns declined $219.7 million versus the prior year. This, combined with the
decline in both immediate and fixed deferred annuity sales, has significantly
reduced the amount available for purchases of investments. Purchases of
investment securities declined $243.8 million versus the prior year. Purchases
of other investments has declined $71.4 million, as the funding of mortgage
loans and investment in real estate have decreased. Finally, the net cash used
in the GuideOne acquisition in 2003 totaled $52.3 million.

Net cash provided from
financing activities was $11.2 million in 2004, versus $132.9 million in 2003.
This decrease is primarily the result of three factors. First, reduced deposits
on policyholder contracts resulted in decreased cash flow of $50.6 million.
Second, withdrawals on policyholder account balances increased $25.4 million.
And, third, the Company reduced its outstanding borrowings by $26.2 million
versus 2003. In addition, the Company also had a reduction in the proceeds from
borrowings of $12.3 million versus 2003.

This 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. At September 30, 2004, outstanding
balances under this agreement totaled $91.1 million in maturities of less than
one year. The primary purpose for these borrowings is to ensure access to
liquidity. This is accomplished through the purchase of highly liquid,
marketable securities from the proceeds of these borrowings.

The Company established a
two-year note payable for $2.0 million associated with the GuideOne purchase,
due in June 2005. Outstanding borrowings of $17.3 million are related to real
estate ownership, and the Company has one construction loan totaling $0.5
million.

Borrowings totaled $110.9
million at September 30, 2004, down $22.8 million from year-end 2003. The
Company has unsecured revolving lines of credit of $60 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.

`September 30       December 31
                                              2004               2003    


Total assets less separate accounts    $     4,281,663    $    4,247,221
Total stockholders' equity                     665,159           644,438
Ratio of stockholders' equity
   to assets less separate accounts                16%               15%`

The ratio of equity to
assets less separate accounts has remained relatively constant, as identified
above. Unrealized investment gains on available for sale securities, which are
included as a part of stockholders equity, totaled $52.2 million at
September 30, 2004 (net of related taxes, policyholder account balances and
deferred acquisition costs), a $5.3 million increase from year-end 2003. This
change is the result of an increase in interest rates during the year.

Stockholders equity
increased $20.7 million from year-end. This increase is primarily the result of
an increase in retained earnings, reflecting the increased net income during
2004. Consolidated book value per share equaled $55.72 at September 30, 2004, a
3% increase from year-end 2003.

During the first nine
months of 2004, the Company did not purchase any of its shares under the stock
repurchase program. Under this program, the Company may purchase up to one
million shares on the open market during 2004.

On October 25, 2004, the
Board of Directors declared a quarterly dividend of $0.27 per share, unchanged
from the prior year, that will be paid November 22, 2004 to stockholders of
record as of November 8, 2004.

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

Asset/Liability Management
Kansas City Lifes
asset/liability management programs and procedures involve the monitoring of
asset and liability durations for various product lines, cash flow testing under
various interest rate scenarios to evaluate the potential sensitivity of assets
and liabilities to interest rate movements, and the continuous rebalancing of
assets and liabilities with respect to yield, risk, and cash flow
characteristics.

Kansas City Life believes
its asset/liability management programs and procedures, along with certain
product features, provide protection for the Company against the effects of
changes in interest rates under various scenarios.

Cash flows and effective
durations of the asset and liability portfolios are measured at points in time
and are affected by changes in the level and term structure of interest rates,
as well as changes in policyholder behavior. Further, durations are managed on
an individual product level, as well as an aggregate portfolio basis. As a
result, differences typically exist between the duration, cash flows and yields
of assets versus liabilities on an individual portfolio and aggregate basis. The
Companys asset/liability management programs and procedures enable
management to monitor the changes, which have both positive and negative
correlations among certain portfolios, and to make adjustments to asset mix,
liability crediting rates and product terms so as to manage risk and
profitability over time.

The Company performs cash
flow scenario testing through models of its in-force business. These models
reflect specific product characteristics and include assumptions based on
current and anticipated experience regarding the relationships between
short-term and long-term interest rates (i.e., the slope of the yield curve),
credit spreads, market liquidity and other factors, including policyholder
behavior in certain market conditions. In addition, these models include asset
cash flow projections, reflecting interest payments, sinking fund payments,
principal payments, bond calls and mortgage prepayments.

The Company has a risk that
the asset or liability portfolio performance may differ from forecasted results
as a result of unforeseen economic circumstances, estimates or assumptions that
prove incorrect, unanticipated policyholder behavior or other factors. The
result of such deviation of actual versus expected performance could include
excess or insufficient liquidity in future periods. Excess liquidity, in turn,
could result in reduced profitability on one or more product lines. Insufficient
liquidity could result in the need to generate liquidity through borrowing,
asset sales or other means. The Company believes that adherence to its
asset/liability management programs will provide sufficient profitability and
liquidity to enable it to fulfill its obligation to pay benefits under its
various insurance and deposit contracts. On a historical basis, the Company has
not needed to liquidate assets to ensure sufficient cash flows. Borrowing lines
on a secured and unsecured basis are maintained to provide additional liquidity,
if needed.

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

Statements made in the
Companys Form 10-K and the 2003 Annual Report to Stockholders regarding
the market and interest rate risk analysis remain pertinent.

The Company holds a
diversified portfolio of investments that includes cash, bonds, preferred
stocks, mortgage-backed securities, commercial mortgages and real estate. Each
of these investments is subject, in varying degree, to market risks that can
affect their return and their fair value. A majority of these assets are debt
instruments of corporations or U.S. Government Sponsored Enterprises (GSE) and
are considered fixed income investments. Thus, the primary market risks
affecting the Companys portfolio are interest rate risk, credit risk and
liquidity risk.

Interest rate risk arises
from the price sensitivity of investments to changes in interest rates. Coupon
and dividend income represent the greatest portion of an investments total
return for most fixed income instruments in stable interest rate environments.
The changes in the fair market price of such investments are inversely related
to changes in market interest rates. As interest rates fall, the coupon and
dividend streams of existing fixed rate investments become more valuable and
market values rise. As interest rates rise, the opposite effect occurs.

Market changes rarely
follow a linear pattern in one direction for any length of time. Within any
diversified portfolio, an investor will likely find embedded options, both puts
and calls, that change the structure of the cash flow stream. Mortgage-backed
securities are particularly sensitive to interest rate changes. As long-term
interest rates fall, homeowners become more likely to refinance their mortgage
or move up to a larger home, causing a prepayment of the outstanding mortgage
principal, which must then be reinvested at a lower rate. Should interest rates
rise suddenly, prepayments expected by investors may decrease, extending the
duration of a mortgage pool. This represents a further interest rate risk to
investors.

As interest rates rise,
policyholders may become more likely to surrender policies or to borrow against
cash values, often to meet sudden needs in an inflationary environment or to
invest in higher yielding opportunities elsewhere. This risk of
disintermediation may force the Company to liquidate parts of its portfolio at a
time when the fair market value of fixed income investments is falling. If
interest rates fall, the Company may also be forced to invest new cash receipts
at levels below the minimum guaranteed rates payable to policyholders, eroding
profit margins. The Company can usually adapt to small sudden changes in
interest rates, or even large changes that occur over longer periods of time.
Cash flow may increase or decrease over the course of the business cycle.
Therefore, the Company takes steps to ensure that adequate liquidity is
available to meet obligations in a timely manner. To this end, the Company
maintains lines of credit with commercial banks and other short-term borrowing
arrangements with financial institutions.

The majority of the
Companys investments are exposed to varying degrees of credit risk. Credit
risk is the risk that the value of the investment may decline due to
deterioration in the financial strength of the issuer and that the timely
payment of principal or interest might not occur.

In recent years, credit
defaults in the marketplace have increased significantly relative to historical
norms. The increase in the default rate has been attributed to several factors,
including the economic slowdown experienced by the U.S. economy, the increased
use of leverage by corporate issuers, fraud and adverse legal judgments against
corporations, among others. A default by a rated issuer usually involves some
loss of principal to the investor, as evidenced by the write-downs taken by the
Company. Losses can be mitigated by timely sales of affected securities or by
active involvement in a restructuring process. However, there can be no
assurance that the efforts of an investor will lead to favorable outcomes in a
bankruptcy or restructuring.

The Company mitigates
credit risk by diversifying the investment portfolio across a broad range of
issuers, investment sectors and security types, and by limiting the amount
invested in any particular entity. With the exception of certain GSEs,
there is no exposure to any single issuer greater than one percent of assets on
a book value basis. The Company also invests in securities carrying a lien
against physical assets. These securities can improve the likelihood of payment
according to contractual terms and increase recovery amounts in the case of
bankruptcy or restructuring.

As market interest rates
fluctuate, so will the value of the Companys investment portfolio and its
stockholders equity. At September 30, 2004, the Company had an unrealized
investment gain of $52.2 million (net of related taxes, policyholder account
balances and deferred acquisition costs), compared to $46.9 million at year-end
2003. This increase is primarily the result of changes in the term structure of
interest rates and the tightening in credit spreads within the corporate bond
market. The Company continues its practice of the limited use of derivatives as
a form of risk mitigation.

The Company markets certain
variable products. The policyholder assumes essentially all the investment
earnings risk for the portion of the account balance invested in the separate
accounts. However, the Company assesses certain charges based on the policy
account values and changes to the account values can affect the Companys
earnings. The portion of the policyholders account balance invested in the
fixed general account, if any, is affected by the spreads between interest
yields on investments and rates credited to the policyholders accounts.

## Item 4.  
Controls and Procedures

(a) Evaluation of disclosure  controls and  procedures.  The Chief Executive  Officer and Chief  Financial  Officer of Kansas City Life
Insurance  Company have  concluded,  based on their  evaluation as of the end of the period covered by this report,  that the Company's
disclosure  controls and procedures are effective for gathering,  analyzing and disclosing the  information  the Company is required to
disclose in the Company's reports under the Securities Exchange Act of 1934.

(b) Changes in internal  controls.  There were no significant  changes in the Company's  internal controls over financial  reporting or
in other  factors that could  significantly  affect those  controls made during the quarter  covered by this report,  that have, or are
reasonably likely to materially affect the Company's internal control over financial reporting.

## 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.

## 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: November 5, 2004, press release reporting financial results for the third quarter of
2004.

# Kansas City Life
Announces Third Quarter 2004 Results

Kansas
City Life Insurance Company recorded an increase in third quarter net income of
49% to $11.5 million or $0.97 per share relative to the third quarter of 2003.
The Company posted net income of $24.7 million or $2.07 per share for the nine
months ended September 30, 2004, an improvement of $22.8 million from the prior
year. The largest factor contributing to the improved results was the favorable
change in realized investment gains and losses. In addition, increased
investment income from growth in invested assets enhanced the Companys
year-to-date results.

The
Company recognized realized investment gains of $2.8 million for the quarter and
$4.3 million for the nine months, compared to realized investment losses of $5.1
million and $36.1 million for the same periods in 2003. These results reflect
the improved economy and general progress in the performance of corporate credit
markets, along with consistent gains on the sale of real estate.

Insurance
premiums and deposits on policyholder contracts declined for the third quarter
and the first nine months of 2004, compared to 2003. This decline was primarily
due to lower sales of annuities, which were at an elevated level during 2003 due
to strong customer preference for fixed-rate products. However, included in the
2004 results are significant year-to-date increases in premiums for traditional
life insurance and deposits on policyholder contracts for universal life and
variable universal life insurance. These results are due in large part to the
addition of GuideOne Life, which was acquired on June 30, 2003, along with the
Companys continuing emphasis on growth in the life protection product
lines.

The
Company also experienced favorable benefits and expenses, which declined by
12.3% for the third quarter and 3.9% for the nine-month period. Contributing to
these changes are efficiencies being gained through the integration of
operations from GuideOne Life, along with reduced sales of annuities.

On
October 25, 2004, the Board of Directors declared a quarterly dividend of $0.27
per share, payable on November 22, 2004 to stockholders of record on November 8,
2004.

Also
on October 25, 2004, the Company entered into a definitive agreement to sell its
bank subsidiary, Generations Bank, for $10.1 million with an expected gain on
the sale of approximately $1.9 million. The sale of the Bank will allow us to
improve our focus on our core business of providing life insurance. The sale is
expected to close during the first quarter of 2005, subject to the required
approval by the Office of Thrift Supervision.

While
we are pleased with the Companys improved quarterly results, we certainly
believe that the market and economic environment offer opportunities for
continued improvements over time. Our concerted effort to expand life insurance
sales will continue to yield benefits to our shareholders and policyowners, and
we are committed to pursuing this course.

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 $446 million in 2003, and assets and life insurance
in force were $4.6 billion and $32.2 billion, respectively, as of December 31,
2003. The Company operates in 48 states and the District of Columbia. For
further information please refer to the Companys Form 10-Q at
www.kclife.com.

(Continued on next page)

Kansas City Life Announces
Third Quarter 2004 Results
November 5, 2004; Page Two

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

`Quarter ended                   Nine months ended
                                 September 30                      September 30
                              2004           2003              2004           2003

Revenues                  $   117,814    $   121,350      $   348,767   $    320,197

Net income                $    11,533    $     7,728      $    24,650   $      1,805

Net income per share,
    basic and diluted     $      0.97    $      0.65      $      2.07   $       0.15


Dividends paid            $      0.27    $      0.27      $      0.81   $       0.81`

A quarterly dividend of $.27 per share will be paid November 22, 2004 to shareholders of record as of November 8, 2004.

`Average number of shares outstanding          11,931,172       11,929,321         11,928,520      11,949,992`

## Item 6.  
Exhibits.

`(a)  Exhibits:

                 (31)a      Rule 13a-15(e)/15d-15(e) Certifications.

                 (31)b      Rule 13a-15(e)/15d-15(e) Certifications.

                 (32)       Item 32 - Section 906 Certification.`

# 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

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



/s/Tracy W. Knapp
Tracy W. Knapp
Senior Vice President, Finance`

Date:      November 5, 2004