UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

Washington,
D.C. 20549








FORM 10-Q






QUARTERLY
REPORT

Pursuant to
Section 13 or 15(d) of the Securities Exchange Act of 1934



For the
quarterly period ended September 30, 2009






0-1999

(Commission file number)



INVESTORS
HERITAGE CAPITAL CORPORATION

(Exact Name of Registrant as Specified in its Charter)



KENTUCKY
			
			61-6030333(State or other jurisdiction of incorporation or
			organization)
			
			(I.R.S. Employer Identification Number)




200 Capital
Avenue, P.O. Box 717

Frankfort,
Kentucky 40602

(Address of principal executive offices)



(502) 223-2361

(Registrant's telephone number, including area code)








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



Yes [X]   No [  ]



Indicate by check mark whether the registrant has submitted
electronically and posted on its corporate Web site, if any, every Interactive
Data File required to be submitted and posted pursuant to Rule 405 of Regulation
S-T during the preceding 12 months (or for such shorter period that the
registrant was required to submit and post such files).



Yes [  ]    No
[  ]



Indicate by check mark whether the registrant is a large
accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller
reporting company. See the definitions of "large accelerated filer,"
"accelerated filer" and "smaller reporting company" in Rule 12b-2 of the
Exchange Act.



Large accelerated filer   
[  ]                                                                                
               Accelerated filer   [  ]

Non-accelerated filer      [  ] (Do not check if a
smaller reporting company)          Smaller
reporting company  [X]



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



Yes [  ]   No [X]



Securities
registered pursuant to Section 12(g) of the Act:



Common Capital
Stock par value $1.00 per share

(Title of Class)



Number of
outstanding shares as of November 12, 2009 1,135,764.356





---





CONTENTS





PART I -- FINANCIAL INFORMATIONPageITEM 1.
			Condensed Consolidated Financial Statements
			4ITEM 2.
			Management's Discussion and Analysis of
			Financial Condition and Results of Operations
			21ITEM 4T.
			Controls and Procedures
			29PART II -- OTHER INFORMATIONITEM 1.
			Legal
			Proceedings
			30ITEM 2.
			Unregistered Sales of Equity Securities and Use of Proceeds
			30ITEM 3.
			Defaults
			Upon Senior Securities
			30ITEM 4.
			Submission of Matters to a Vote of Security Holders
			30ITEM 5.
			Other
			Information
			30ITEM 6.
			Exhibits
			30  SIGNATURES
			
			31EXHIBIT 31.1
			
			32EXHIBIT 31.2
			
			34EXHIBIT 32
			
			36




3



---





PART I -- FINANCIAL INFORMATION




ITEM 1.  Condensed
Consolidated Financial Statements



INVESTORS
HERITAGE CAPITAL CORPORATION

Condensed
Consolidated Balance Sheets (Unaudited)





September 30,
			
			December 31,ASSETS
			
			2009
			
			2008Investments:Securities available-for-sale, at fair
			value:Fixed maturities (amortized cost:
			$285,974,328 and $282,335,626)
			
			$  301,725,844
			
			$  285,430,376Equity securities (cost: $4,056,869 and
			$4,040,062)
			
			4,353,641
			
			3,938,177Mortgage loans on real estate
			
			21,273,116
			
			22,512,438Policy loans
			
			6,969,923
			
			6,971,949Other long-term investments
			
			883,678
			
			1,021,741Short-term investments
			
			-
			
			25,000Total investments
			
			335,206,202
			
			319,899,681Cash and cash equivalents
			
			2,816,813
			
			2,819,257Accrued investment income
			
			3,441,636
			
			4,338,974Due premiums
			
			3,494,657
			
			3,618,390Deferred acquisition costs
			
			18,930,540
			
			19,882,671Present value of future profits
			
			17,291
			
			30,260Leased property under capital leases
			
			171,316
			
			283,695Property and equipment
			
			1,793,057
			
			1,702,331Cash value of company-owned life insurance
			
			8,414,816
			
			7,764,223Other assets
			
			356,124
			
			338,182Amounts recoverable from reinsurers
			
			46,539,047
			
			49,523,594$  421,181,499
			
			$  410,201,258LIABILITIES AND STOCKHOLDERS' EQUITYLIABILITIESPolicy liabilities:Benefit reserves
			
			$  342,348,811
			
			$  342,065,366Unearned premium reserves
			
			10,048,189
			
			12,154,938Policy claims
			
			1,454,284
			
			1,504,744Liability for deposit-type contracts
			
			2,755,905
			
			2,733,214Reserves for dividends and endowments and
			other
			
			530,468
			
			524,797Total policy liabilities
			
			357,137,657
			
			358,983,059Deferred federal income tax liability
			
			5,558,214
			
			1,292,352Obligations under capital leases
			
			177,509
			
			284,307Notes payable
			
			2,577,465
			
			3,701,506Accrued pension liability
			
			5,390,293
			
			5,641,941Other liabilities
			
			2,340,825
			
			1,990,538Total liabilities
			
			373,181,963
			
			371,893,703STOCKHOLDERS' EQUITYCommon stock (shares issued:  1,135,754 and
			1,120,686)
			
			1,135,754
			
			1,120,686Paid-in surplus
			
			8,737,898
			
			8,705,492Accumulated other comprehensive income
			(loss)
			
			6,059,930
			
			(2,542,413)Retained earnings
			
			32,065,954
			
			31,023,790Total stockholders' equity
			
			47,999,536
			
			38,307,555$  421,181,499
			
			$  410,201,258  See
			notes to condensed consolidated financial statements.




4



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INVESTORS HERITAGE CAPITAL CORPORATION

Condensed Consolidated Income Statements (Unaudited)





Quarter Ended September 30,
			
			Nine Months Ended September 30,2009
			
			2008
			
			2009
			
			2008REVENUEPremiums and other considerations
			$     9,987,378
			
			$     11,728,363
			
			$     30,705,939
			
			$     34,205,627Premiums ceded
			(1,644,520)
			
			(3,297,029)
			
			(6,239,601)
			
			(9,523,970)Net premiums earned
			8,342,858
			
			8,431,334
			
			24,466,338
			
			24,681,657Investment income, net of expenses
			4,327,540
			
			4,401,634
			
			13,111,084
			
			13,354,889Net realized investment gains (losses)
			709,595
			
			(2,907,145)
			
			(156,981)
			
			(2,907,527)Other income
			327,706
			
			272,868
			
			837,164
			
			824,789Total revenue
			13,707,699
			
			10,198,691
			
			38,257,605
			
			35,953,808BENEFITS AND EXPENSESDeath and other benefits
			6,082,136
			
			7,101,104
			
			22,450,114
			
			23,722,447Guaranteed annual endowments
			113,712
			
			122,129
			
			390,087
			
			417,455Dividends to policyholders
			101,702
			
			114,309
			
			359,037
			
			416,602Increase in benefit reservesand unearned premiums
			2,885,874
			
			1,929,152
			
			4,363,769
			
			3,812,794Acquisition costs deferred
			(1,031,266)
			
			(1,184,285)
			
			(3,504,120)
			
			(3,540,392)Amortization of deferred acquisition costs
			1,282,590
			
			1,338,976
			
			3,900,989
			
			4,027,483Commissions
			639,803
			
			584,751
			
			1,784,707
			
			1,653,302Other insurance expenses
			2,249,348
			
			2,199,905
			
			7,864,333
			
			7,174,503Total benefits and expenses
			12,323,899
			
			12,206,041
			
			37,608,916
			
			37,684,194INCOME (LOSS) BEFOREFEDERAL INCOME TAXES
			1,383,800
			
			(2,007,350)
			
			648,689
			
			(1,730,386)PROVISION (BENEFIT) FORFEDERAL INCOME TAXESCurrent
			196,876
			
			102,370
			
			368,932
			
			236,345Deferred
			180,071
			
			(578,819)
			
			(192,229)
			
			(647,056)376,947
			
			(476,449)
			
			176,703
			
			(410,711)NET INCOME (LOSS)
			$      1,006,853
			
			$     (1,530,901)
			
			$         471,986
			
			$     (1,319,675)BASIC AND DILUTED NET EARNINGS(LOSS) PER SHARE
			$               0.89
			
			$              (1.37)
			
			$               0.42
			
			$              (1.18)DIVIDENDS PER SHARE
			$                     -
			
			$                     -
			
			$                    -
			
			$               0.38  See notes to condensed consolidated
			financial statements.




5



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INVESTORS HERITAGE CAPITAL CORPORATION

Condensed Consolidated Statements of Stockholders' Equity (Unaudited)



AccumulatedOther
			
			
			
			TotalCommon
			
			Paid-in
			
			Comprehensive
			
			Retained
			
			Stockholders'Stock
			
			Surplus
			
			Income (Loss)
			
			Earnings
			
			EquityBALANCE, JANUARY 1, 2008
			$1,117,851
			
			$8,650,907
			
			$    1,902,238
			
			$32,886,104
			
			$44,557,100Comprehensive loss:Net loss
			-
			
			-
			
			-
			
			(1,319,675)
			
			(1,319,675)Change in net unrealized appreciationon available-for-sale securities
			-
			
			-
			
			(5,442,504)
			
			-
			
			(5,442,504)Change in unrealized pension benefits
			-
			
			-
			
			122,168
			
			-
			
			122,168Change in fair value of hedging instrument
			-
			
			-
			
			2,749
			
			-
			
			2,749Total comprehensive loss
			
			
			
			
			
			
			
			
			(6,637,262)Cash dividends
			-
			
			-
			
			-
			
			(422,959)
			
			(422,959)Issuances (repurchases) ofcommon stock, net
			1,624
			
			49,326
			
			-
			
			(12,591)
			
			38,359BALANCE, SEPTEMBER 30, 2008
			$1,119,475
			
			$8,700,233
			
			$  (3,415,349)
			
			$31,130,879
			
			$37,535,238BALANCE, JANUARY 1, 2009
			$1,120,686
			
			$8,705,492
			
			$  (2,542,413)
			
			$31,023,790
			
			$38,307,555Cumulative effect of a change inaccounting principle
			-
			
			-
			
			(272,157)
			
			272,157
			
			-Comprehensive income:Net income
			-
			
			-
			
			-
			
			471,986
			
			471,986Change in net unrealized appreciationon available-for-sale securities
			-
			
			-
			
			8,594,147
			
			-
			
			8,594,147Change in unrealized pension benefits
			-
			
			-
			
			276,800
			
			-
			
			276,800Change in fair value of hedging instrument
			-
			
			-
			
			3,553
			
			-
			
			3,553Total comprehensive income
			
			
			
			
			
			
			
			
			9,346,486Issuances (repurchases) ofcommon stock, net
			15,068
			
			32,406
			
			-
			
			298,021
			
			345,495BALANCE, SEPTEMBER 30, 2009
			$1,135,754
			
			$8,737,898
			
			$   6,059,930
			
			$32,065,954
			
			$47,999,536  See
			notes to condensed consolidated financial statements.




6



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INVESTORS HERITAGE CAPITAL CORPORATION

Condensed Consolidated Statements of Cash Flows (Unaudited)



Nine Months Ended September 30,2009
			
			
			2008NET CASH PROVIDED BY OPERATING ACTIVITIES
			
			
			$   5,338,467
			
			
			$   6,089,497INVESTING ACTIVITIESSecurities available-for-sale:Purchases
			
			
			(57,518,256)
			
			
			(17,276,585)Sales and maturities
			
			
			54,004,491
			
			
			27,918,021Other investments:Cost of acquisitions
			
			
			(684,008)
			
			
			(909,350)Sales and maturities
			
			
			2,088,419
			
			
			2,918,415Net additions to property and equipment
			
			
			(244,724)
			
			
			(257,413)NET CASH PROVIDED BY (USED IN) INVESTING
			ACTIVITIES
			
			
			(2,354,078)
			
			
			12,393,088FINANCING ACTIVITIESReceipts from universal life policies
			credited topolicyholder account balances
			
			
			5,265,003
			
			
			5,641,005Return of policyholder account balances on
			universal life policies
			
			
			(7,473,290)
			
			
			(6,639,078)Payments on notes payable
			
			
			(2,624,171)
			
			
			(2,438,972)Proceeds from notes payable
			
			
			1,500,130
			
			
			2,047,500Dividends paid
			
			
			-
			
			
			(422,959)Issuances (repurchases) of common stock, net
			
			
			345,495
			
			
			38,359NET CASH USED IN FINANCING ACTIVITIES
			
			
			(2,986,833)
			
			
			(1,774,145)INCREASE (DECREASE) IN CASH AND CASH
			EQUIVALENTS
			
			
			(2,444)
			
			
			16,708,440Cash and cash equivalents at beginning of
			period
			
			
			2,819,257
			
			
			1,238,194CASH AND CASH EQUIVALENTS AT END OF PERIOD
			
			
			$   2,816,813
			
			
			$   17,946,634  See
			notes to condensed consolidated financial statements.




7



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INVESTORS HERITAGE CAPITAL CORPORATION



NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

September 30,
2009

(Unaudited)



NOTE A - Nature of Operations

Investors Heritage Capital Corporation (formerly known as
Kentucky Investors, Inc. prior to name change effective June 1, 2009) is the
holding company of Investors Heritage Life Insurance Company; Investors Heritage
Printing, Inc., a printing company; Investors Heritage Financial Services Group,
Inc., an insurance marketing company; is the sole member of At Need Funding,
LLC, a limited liability company that provides advance funding of funerals in
exchange for the irrevocable assignment of life insurance policies from other
nonaffiliated companies; and is the sole member of Heritage Funding, LLC, a
limited liability company that invests in various business ventures. These
entities are collectively hereinafter referred to as the "Company".
Approximately 99% of Investors Heritage Capital's consolidated revenue is
generated by Investors Heritage Life.



Our operations involve the sale and administration of
various insurance and annuity products, including, but not limited to,
participating and non-participating whole life, limited pay life, universal
life, annuity contracts, credit life, credit accident and health and group
insurance policies. The principal markets for the Company's products are in the
Commonwealths of Kentucky and Virginia, and the States of North Carolina, South
Carolina, Ohio, Indiana, Florida, Tennessee, Georgia, and Michigan.



NOTE B - Basis of Presentation

The accompanying unaudited condensed consolidated
financial statements have been prepared in accordance with U.S. generally
accepted accounting principles for interim financial information and the
instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do
not include all of the information and footnotes required by U.S. generally
accepted accounting principles for complete financial statements. In the opinion
of management, all adjustments (consisting of normal recurring accruals)
considered necessary for a fair presentation have been included. Operating
results for the nine months ended September 30, 2009 are not necessarily
indicative of the results that may be expected for the year ending December 31,
2009. For further information, refer to the consolidated financial statements
and footnotes thereto for the year ended December 31, 2008, as included in our
Annual Report on Form 10-K.



The preparation of financial statements in conformity
with U.S. generally accepted accounting principles requires management to make
estimates and assumptions that affect the amounts reported in the financial
statements and accompanying notes. Actual results could differ from those
estimates.



NOTE C - New Accounting Pronouncements

In April 2009, the Financial
Accounting Standards Board ("FASB") issued new guidance regarding the
recognition and presentation of other-than-temporary impairments.  The new
guidance requires entities to separate an other-than-temporary impairment of a
fixed maturity security into two components when there are credit related and
non-credit related losses associated with the impaired fixed maturity security
for which management asserts that it does not have the intent to sell the
security, and it is not more likely than not that it will be required to sell
the security before recovery of its cost basis.  The amount of the
other-than-temporary impairment related to a credit loss is recognized in
earnings, and the amount of the other-than-temporary impairment related to other
factors is recognized in other comprehensive income (loss).  We elected to early
adopt this guidance effective January 1, 2009.  As a result of the adoption of
this guidance, we recognized a cumulative effect adjustment of $272,157 (net of
deferred income tax of $137,326) to move non-credit related other-than-temporary
impairments previously recognized in earnings for the year ended December 31,
2008 from retained earnings to accumulated other comprehensive income (loss) for
fixed maturity securities held at the date of adoption.



8



---





In April 2009, the FASB issued
new guidance to clarify fair valuation in inactive markets and includes all
assets and liabilities subject to fair value measurements.  Under this guidance,
if an entity determines that there has been a significant decrease in the volume
and level of activity for the asset or the liability in relation to the normal
market activity for the asset or liability (or similar assets or liabilities),
then transactions or quoted prices may not accurately reflect fair value.   In
addition, if there is evidence that the transaction for the asset or liability
is not orderly, the entity shall place little, if any weight on that transaction
price as an indicator of fair value.   We elected to early adopt this guidance
effective January 1, 2009, and its adoption did not have a material impact on
our consolidated financial condition or results of operations.



In April 2009, the FASB issued
new guidance to expand the fair value disclosures required for financial
instruments for interim periods.  The guidance also requires entities to
disclose the methods and significant assumptions used to estimate the fair value
of financial instruments in financial statements on an interim and annual basis
and to highlight any changes from prior periods.  This guidance was effective
for periods ending after June 15, 2009, with early adoption permitted for
periods ending after March 15, 2009.   We adopted this guidance effective for
the second quarter of 2009.



In May 2009, the FASB issued new
guidance that established general accounting standards and disclosure for events
occurring subsequent to the balance sheet date but before the financial
statements are issued.  This guidance became effective for interim and annual
accounting periods ending after June 15, 2009.  The Company adopted this
guidance upon issuance, with no material impact to the consolidated financial
statements.  See Note K - Subsequent Events.



In June 2009, the FASB issued
guidance to reorganize existing U.S. accounting and reporting standards issued
by the FASB and other private sector standard setters into a single source of
authoritative accounting principles arranged by topic (the "Codification"). The
Codification replaced previous guidance related to the same issue and became
effective for interim and annual reporting periods ending after September 15,
2009.  The Company adopted it upon issuance, with no material impact to the
consolidated financial statements.



9



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NOTE D - Investments

Investments in available-for-sale securities are
summarized as follows:



September 30, 2009
			
			
			
			
			Gross Unrealized LossesAmortized
			Cost
			
			Gross
			Unrealized
			Gains
			
			12 Months
			or Less
			
			Greater Than
			12 Months
			
			Fair
			ValueFixed maturity securities:U.S. government obligations
			$    41,117,792
			
			$    2,290,020
			
			$         25,260
			
			$                 -
			
			$    43,382,552States and political subdivisions
			28,343,562
			
			1,382,037
			
			13,152
			
			93,920
			
			29,618,527Corporate
			136,384,099
			
			8,900,161
			
			36,729
			
			1,147,493
			
			144,100,038Foreign
			20,445,114
			
			2,053,668
			
			-
			
			292,902
			
			22,205,880Asset-backed securities
			6,487,243
			
			424,651
			
			103,845
			
			11,867
			
			6,796,182Mortgage-backed securities (MBS):Commercial MBS
			7,035,541
			
			39,094
			
			-
			
			107,863
			
			6,966,772Residential MBS
			46,160,977
			
			2,494,916
			
			-
			
			-
			
			48,655,893Total fixed maturity securities
			285,974,328
			
			17,584,547
			
			178,986
			
			1,654,045
			
			301,725,844Equity securities:U.S. agencies
			552,800
			
			-
			
			-
			
			-
			
			552,800Mutual funds
			2,059,843
			
			200,622
			
			85,455
			
			15,475
			
			2,159,535Nonredeemable corporate preferred
			990,000
			
			-
			
			92,500
			
			-
			
			897,500Corporate common stock
			454,226
			
			289,580
			
			-
			
			-
			
			743,806Total equity securities
			4,056,869
			
			490,202
			
			177,955
			
			15,475
			
			4,353,641Total
			$  290,031,197
			
			$   18,074,749
			
			$        356,941
			
			$    1,669,520
			
			$   306,079,485December 31, 2008
			
			
			
			
			Gross Unrealized LossesAmortized
			Cost
			
			Gross
			Unrealized
			Gains
			
			12 Months
			or Less
			
			Greater Than
			12 Months
			
			Fair
			ValueFixed maturity securities:U.S. government obligations
			$    22,387,095
			
			$    2,763,378
			
			$                   -
			
			$                  -
			
			$    25,150,473States and political subdivisions
			22,443,720
			
			521,626
			
			102,320
			
			109,990
			
			22,753,036Corporate
			140,156,197
			
			3,369,812
			
			1,821,035
			
			4,034,601
			
			137,670,373Foreign
			20,735,082
			
			2,403,250
			
			207,574
			
			319,957
			
			22,610,801Asset-backed securities
			11,892,227
			
			39,362
			
			148,789
			
			279,173
			
			11,503,627Mortgage-backed securities
			64,721,305
			
			2,028,284
			
			181,872
			
			825,651
			
			65,742,066Total fixed maturity securities
			282,335,626
			
			11,125,712
			
			2,461,590
			
			5,569,372
			
			285,430,376Total equity securities
			4,040,062
			
			436,404
			
			538,289
			
			-
			
			3,938,177Total
			$  286,375,688
			
			$  11,562,116
			
			$    2,999,879
			
			$    5,569,372
			
			$  289,368,553




10



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The following table summarizes,
for all securities in an unrealized loss position as of the balance sheet dates,
the estimated fair value, pre-tax gross unrealized loss and number of securities
by length of time that those securities have been continuously in an unrealized
loss position.



GrossSeptember 30, 2009
			
			Estimated
			
			Unrealized
			
			Number ofFair Value
			
			Loss
			
			SecuritiesFixed Maturities:Fewer than 6 months:U.S. government obligations
			
			$        954,300
			
			$           25,260
			
			1States and political subdivisions
			
			2,030,680
			
			13,152
			
			1Corporate
			
			1,104,270
			
			835
			
			17-12 months:Corporate
			
			340,000
			
			35,894
			
			1Asset-backed securities
			
			475,432
			
			103,845
			
			1Greater than 12 months:States and political subdivisions
			
			906,080
			
			93,920
			
			1Corporate
			
			14,658,750
			
			1,147,493
			
			15Foreign
			
			1,677,420
			
			292,902
			
			2Asset-backed securities
			
			51,010
			
			11,867
			
			1Commercial MBS
			
			3,926,342
			
			107,863
			
			4Total fixed maturities
			
			26,124,284
			
			1,833,031
			
			28Equities:7-12 months:Mutual funds
			
			673,202
			
			85,455
			
			1Nonredeemable corporate preferred
			
			897,500
			
			92,500
			
			1Greater than 12 months:Mutual funds
			
			302,809
			
			15,475
			
			1Total equities
			
			1,873,511
			
			193,430
			
			3Total
			
			$      27,997,795
			
			$        2,026,461
			
			31GrossDecember 31, 2008
			
			Estimated
			
			Unrealized
			
			Number ofFair Value
			
			Loss
			
			SecuritiesFixed Maturities:Fewer than 6 months
			
			$      29,639,437
			
			$       1,137,770
			
			297-12 months
			
			23,011,682
			
			1,323,820
			
			22Greater than 12 months
			
			33,855,448
			
			5,569,372
			
			47Total fixed maturities
			
			86,506,567
			
			8,030,962
			
			98Equities:Fewer than 6 months
			
			1,520,803
			
			538,289
			
			3Total equities
			
			1,520,803
			
			538,289
			
			3Total
			
			$      88,027,370
			
			$       8,569,251
			
			101




As of September 30, 2009, all of the above fixed maturity
securities individually had a fair value to cost ratio equal to or greater than
74% and the equity securities noted above had a fair value to cost ratio of over
88%.  As of December 31, 2008, all of the above fixed maturity securities had a
fair value to cost ratio equal to or greater than 61% and the equity securities
noted above had a fair value to cost ratio of over 65%.  At September 30, 2009
and December 31, 2008, the Company's fixed maturity securities were 98.1% and
99.9% investment grade, respectively, as rated by Standard & Poor's.



11



---





The Company's decision to record
an impairment loss is primarily based on whether the security's fair value is
likely to remain significantly below its book value in light of all the factors
considered. Factors that are considered include the length of time the
security's fair value has been below its carrying amount, the severity of the
decline in value, the credit worthiness of the issuer, and the coupon and/or
dividend payment history of the issuer.  The Company also assesses whether it
intends to sell or whether it is more likely than not that it may be required to
sell the security prior to its recovery in value.  For any fixed maturity
securities that are other-than-temporarily impaired, the Company determines the
portion of the other-than-temporary impairment that is credit-related and the
portion that is related to other factors. The credit-related portion is the
difference between the expected future cash flows and the amortized cost basis
of the fixed maturity security, and that difference is charged to earnings. The
non-credit-related portion representing the remaining difference to fair value
is recognized in other comprehensive income (loss). Only in the case of a
credit-related impairment where management has the intent to sell the security,
or it is more likely than not that it will be required to sell the security
before recovery of its cost basis, is a fixed maturity security adjusted to fair
value and the resulting losses recognized in realized gains/losses in the
consolidated statements of income.  Any other-than-temporary impairments on
equity securities are recorded in the consolidated statements of income in the
periods incurred as the difference between fair value and cost.



Based on our review, the Company
recorded two other-than-temporary impairments during the second quarter of
2009.  The Company impaired its $2,000,000 par value CIT Group Holdings bond as
a result of recent negative information relative to a potential government
bailout.  This impairment was considered fully credit-related, resulting in a
charge to the income statement before tax of $954,877 as of June 30, 2009.  This
charge represents the difference between the amortized cost basis of the
security and its fair value as management cannot assert that it does not have
the intent to sell the security.  The Company also impaired an ALCOA bond as of
June 30, 2009, based on its intent to sell the security before recovery,
generating a pre-tax credit-related loss of $22,953.  The Company sold these
bonds during the third quarter of 2009 at an additional realized loss of
$267,299.  The Company has experienced no additional other-than temporary
impairments during 2009.



The Company recognized certain
other-than-temporary impairments relative to Bank of America and JP Morgan bonds
during the fourth quarter of 2008.  Upon adoption of new FASB guidance effective
January 1, 2009 as discussed in Note C, a cumulative effect adjustment was made
to reflect the fact that the other-than-temporary impairments on the Bank of
America and JP Morgan bonds were not credit-related but rather were related to
other factors in the marketplace as management asserted that it did not have the
intent to sell, and it was not more likely than not that it would be required to
sell the securities before recovery of their cost basis.  Since March 31, 2009,
the cost basis in the JP Morgan securities had substantially recovered.  As
such, the JP Morgan securities were sold during the second quarter at a net
gain.  The Company continues to assert that it does not have the intent to sell,
and it is not more likely than not that it will be required to sell the Bank of
America securities before recovery of their cost basis.



Net unrealized gains for
investments classified as available-for-sale are presented below, net of the
effect on deferred income taxes and deferred acquisition costs assuming that the
appreciation (depreciation) had been realized.



September 30,
			
			December 31,2009
			
			2008Net unrealized appreciation onavailable-for sale securities
			$  16,048,288
			
			$     2,992,865Adjustment to deferred acquisition costs
			(710,243)
			
			(154,982)Deferred income taxes
			(5,561,894)
			
			(1,383,722)Net unrealized appreciation onavailable-for sale securities
			$    9,776,151
			
			$    1,454,161




12



---





The amortized cost and fair
value of fixed maturity securities at September 30, 2009, by contractual
maturity, are presented below.  Expected maturities will differ from contractual
maturities because borrowers may have the right to call or prepay obligations
with or without call or prepayment penalties.





Available-for-SaleAmortized
			
			FairCost
			
			ValueDue in one year or less
			$       7,645,231
			
			$       7,785,825Due after one year through five years
			79,501,123
			
			84,769,018Due after five years through ten years
			91,581,247
			
			95,468,473Due after ten years
			54,050,209
			
			58,079,863Due at multiple maturity dates
			53,196,518
			
			55,622,665Total
			$   285,974,328
			
			$   301,725,844






Proceeds for the three months
ended September 30, 2009 and 2008 from sales and maturities of investments in
available-for-sale securities were $27,272,705 and $16,810,338, respectively. 
Gross gains of $978,863 and $652,896 and gross losses of $269,268 and $1,886
were realized on those sales during the three month periods ended September 30,
2009 and 2008, respectively.  Proceeds for the nine months ended September 30,
2009 and 2008 from sales and maturities of investments in available-for-sale
securities were $54,004,491 and $27,918,021, respectively.  Gross gains of
$1,105,215 and $654,354 and gross losses of $1,262,196 and $3,725 were realized
on those sales during the nine months ended September 30, 2009 and 2008,
respectively.



Presented below is investment
information, including the accumulated quarter and year-to-date change in net
unrealized investment gains or losses.  Additionally, the table shows the change
in net unrealized investment gains (losses) and the amount of realized
investment gains (losses) on fixed maturities and equity securities for the
three and nine months ended September 30, 2009 and 2008.



Quarter Ended September 30,
			
			Nine Months Ended September 30,2009
			
			2008
			
			2009
			
			2008Change in unrealized investmentgains (losses):Available-for-sale:Fixed maturities
			$    9,083,994
			
			$   (6,262,442)
			
			$   12,656,766
			
			$ (10,225,851)Equity securities
			129,924
			
			(6,405)
			
			398,657
			
			(500,892)Realized investment gains (losses):Available-for-sale:Fixed maturities
			$       709,595
			
			$   (2,907,145)
			
			$      (156,981)
			
			$   (2,907,527)Equity securities
			-
			
			-
			
			-
			
			-




Major categories of net
investment income are summarized as follows:



Quarter Ended September 30,
			
			Nine Months Ended September 30,2009
			
			2008
			
			2009
			
			2008Fixed maturities
			$    3,999,087
			
			$    3,943,815
			
			$    12,010,567
			
			$    11,947,262Mortgage loans on real estate
			356,406
			
			410,875
			
			1,166,386
			
			1,345,927Other
			192,015
			
			256,671
			
			594,005
			
			690,8654,547,508
			
			4,611,361
			
			13,770,958
			
			13,984,054Investment expenses
			219,968
			
			209,727
			
			659,874
			
			629,165$    4,327,540
			
			$    4,401,634
			
			$    13,111,084
			
			$    13,354,889




13



---





NOTE E - Fair Values of Financial Instruments

Fair value is defined as the
price that would be received to sell an asset or paid to transfer a liability
(an exit price) in the principal or most advantageous market for the asset or
liability in an orderly transaction between market participants on the
measurement date.  We also consider the impact on fair value of a significant
decrease in volume and level of activity for an asset or liability when compared
with normal activity.



The
Company holds fixed maturities and equity securities that are measured and
reported at fair market value on the balance sheet.  The Company determines the
fair market values of its financial instruments based on the fair value
hierarchy that requires an entity to maximize the use of observable inputs and
minimize the use of unobservable inputs when measuring fair value.  The standard
describes three levels of inputs that may be used to measure fair value, as
follows:



Level
1 - Quoted prices in active markets for identical assets or liabilities. The
Company's Level 1 assets and liabilities include fixed maturities and equity
securities that are traded in an active exchange market, as well as certain U.S.
Treasury securities that are highly liquid and are actively traded in
over-the-counter markets.



Level
2 - Observable inputs other than Level 1 prices, such as quoted prices for
similar assets or liabilities; quoted prices in markets that are not active; or
other inputs that are observable or can be corroborated by observable market
data for substantially the full term of the assets or liabilities. The Company's
Level 2 assets and liabilities include fixed maturities with quoted prices that
are traded less frequently than exchange-traded instruments or assets and
liabilities whose value is determined using a pricing model with inputs that are
observable in the market or can be derived principally from or corroborated by
observable market data. This category generally includes U.S. Government and
agency mortgage-backed fixed maturities and corporate fixed maturities.



Level
3 - Unobservable inputs that are supported by little or no market activity
and that are significant to the fair value of the assets or liabilities. The
Company's Level 3 assets and liabilities include financial instruments whose
value is determined using pricing models, discounted cash flow methodologies, or
similar techniques, as well as instruments for which the determination of fair
value requires significant management judgment or estimation. This category
generally includes certain private equity investments and asset-backed
securities where independent pricing inputs were not able to be obtained for a
significant portion of the underlying assets.

The
Company has categorized its financial instruments, based on the priority of the
inputs to the valuation technique, into the three-level fair value hierarchy. 
If the inputs used to measure the financial instruments fall within different
levels of the hierarchy, the categorization is based on the lowest level input
that is significant to the fair value measurement of the instrument.  A review
of fair value hierarchy classifications is conducted on a quarterly basis.
Changes in the valuation inputs, or their ability to be observed, may result in
a reclassification for certain financial assets or liabilities.
Reclassifications impacting Level 3 of the fair value hierarchy are reported as
transfers in/out of the Level 3 category as of the beginning of the period in
which the reclassifications occur.



14



---





The following table presents the Company's fair value
hierarchy for those financial instruments measured at fair value on a recurring
basis as of September 30, 2009 and December 31, 2008, respectively.



September 30, 2009Level 1
			
			Level 2
			
			Level 3
			
			TotalFixed maturities:U.S. government obligations
			$                   -
			
			$  40,287,872
			
			$    3,094,680
			
			$    43,382,552States and political subdivisions
			-
			
			29,618,527
			
			-
			
			29,618,527Corporate
			-
			
			138,268,495
			
			5,831,542
			
			144,100,037Foreign
			-
			
			22,205,880
			
			-
			
			22,205,880Asset-backed securities
			-
			
			6,320,750
			
			475,433
			
			6,796,183Mortgage-backed securities:Commercial MBS
			-
			
			6,966,772
			
			-
			
			6,966,772Residential MBS
			-
			
			48,655,893
			
			-
			
			48,655,893Total fixed maturities
			$                   -
			
			$ 292,324,189
			
			$    9,401,655
			
			$  301,725,844Equity securities:U.S. agencies
			$        552,800
			
			$                   -
			
			$                   -
			
			$         552,800Mutual funds
			2,159,535
			
			-
			
			-
			
			2,159,535Nonredeemable corporate preferred
			897,500
			
			-
			
			-
			
			897,500Corporate common stock
			401,406
			
			-
			
			342,400
			
			743,806Total equity securities
			$     4,011,241
			
			$                   -
			
			$       342,400
			
			$      4,353,641December 31, 2008Level 1
			
			Level 2
			
			Level 3
			
			TotalFixed maturities
			$                   -
			
			$ 277,204,295
			
			$    8,226,081
			
			$  285,430,376Equity securities
			3,595,777
			
			-
			
			342,400
			
			3,938,177




At September 30, 2009, Level 3 financial instruments
consisted of five corporate fixed maturities, one U.S. government obligation,
one asset-backed security, one corporate redeemable preferred stock and one
common stock, where trading has been limited.  At December 31, 2008, Level 3
financial instruments consisted of four corporate fixed maturities, one U.S.
government obligation, two asset-backed securities, one corporate redeemable
preferred stock and one common stock, where trading has been limited.  The fair
values for these securities were primarily determined through the use of
non-binding broker quotes and internal models using unobservable assumptions
about market participants.



15



---





The following table provides a summary of changes in fair
value of our Level 3 financial instruments for the three and nine months ended
September 30, 2009 and 2008, respectively.



Quarter Ended September 30, 2009July 1,
			
			Realized
			
			Unrealized2009
			
			Gains
			
			Gains
			
			Purchases
			
			Transfers
			
			EndingBalance
			
			(Losses)
			
			(Losses)
			
			(Sales)
			
			In
			(Out)
			
			BalanceFixed maturities:U.S. Government obligations
			$      999,700
			
			$                -
			
			$        66,930
			
			$   1,879,076
			
			$      148,974
			
			$   3,094,680Corporate
			6,191,597
			
			-
			
			459,048
			
			(819,103)
			
			-
			
			5,831,542Asset-backed securities
			1,614,960
			
			-
			
			(10,079)
			
			(35,935)
			
			(1,093,513)
			
			475,433Total fixed maturities
			$   8,806,257
			
			-
			
			$      515,899
			
			$   1,024,038
			
			$    (944,539)
			
			$   9,401,655Equity securities:Corporate common stock
			$      342,400
			
			$                -
			
			$                  -
			
			$                 -
			
			$                  -
			
			$      342,400Total equity securities
			$      342,400
			
			$                -
			
			$                  -
			
			$                 -
			
			$                  -
			
			$      342,400Quarter Ended September 30, 2008July 1,
			
			Realized
			
			Unrealized2008
			
			Gains
			
			Gains
			
			Purchases
			
			Transfers
			
			EndingBalance
			
			(Losses)
			
			(Losses)
			
			(Sales)
			
			In
			(Out)
			
			BalanceFixed maturities
			$   7,662,264
			
			$                -
			
			$       (43,378)
			
			$   1,964,375
			
			$       756,929
			
			$ 10,340,190Equity securities
			320,000
			
			-
			
			-
			
			-
			
			-
			
			320,000Nine Months Ended September 30, 2009January 1,
			
			Realized
			
			Unrealized2009
			
			Gains
			
			Gains
			
			Purchases
			
			Transfers
			
			EndingBalance
			
			(Losses)
			
			(Losses)
			
			(Sales)
			
			In
			(Out)
			
			BalanceFixed maturities:U.S. Government obligations
			$   2,037,998
			
			$                -
			
			$        48,997
			
			$   2,471,481
			
			$  (1,463,796)
			
			$   3,094,680Corporate
			4,588,512
			
			-
			
			416,277
			
			826,753
			
			-
			
			5,831,542Asset-backed securities
			1,599,571
			
			-
			
			75,383
			
			(106,008)
			
			(1,093,513)
			
			475,433Total fixed maturities
			$   8,226,081
			
			$                -
			
			$      540,657
			
			$   3,192,226
			
			$  (2,557,309)
			
			$   9,401,655Equity securities:Corporate common stock
			$      342,400
			
			$                -
			
			$                  -
			
			$                  -
			
			$                  -
			
			$      342,400Total equity securities
			$      342,400
			
			$                -
			
			$                  -
			
			$                  -
			
			$                  -
			
			$      342,400Nine Months Ended September 30, 2008January 1,
			
			Realized
			
			Unrealized2008
			
			Gains
			
			Gains
			
			Purchases
			
			Transfers
			
			EndingBalance
			
			(Losses)
			
			(Losses)
			
			(Sales)
			
			In
			(Out)
			
			BalanceFixed maturities
			$   6,940,640
			
			$                -
			
			$     (316,924)
			
			$   1,964,375
			
			$   1,752,099
			
			$ 10,340,190Equity securities
			320,000
			
			-
			
			-
			
			-
			
			-
			
			320,000








The
unrealized gains (losses) on Level 3 investments are recorded as a component of
accumulated other comprehensive income (loss), net of tax, in accordance with
required accounting for our available-for-sale portfolio.



16



---





The following disclosure
contains the estimated fair values of financial instruments, as of September 30,
2009 and December 31, 2008.  The estimated fair value amounts have been
determined using available market information and appropriate valuation
methodologies.  However, considerable judgment was required to interpret market
data to develop these estimates.  Accordingly, the estimates are not necessarily
indicative of the amounts which could be realized in a current market exchange. 
The use of different market assumptions or estimation methodologies may have a
material effect on the fair value amounts.



September 30, 2009
			
			December 31, 2008Carrying
			
			Fair
			
			Carrying
			
			FairAmount
			
			Value
			
			Amount
			
			ValueAssets:Fixed maturities
			$ 301,725,844
			
			$ 301,725,844
			
			$ 285,430,376
			
			$ 285,430,376Equity securities
			4,353,641
			
			4,353,641
			
			3,938,177
			
			3,938,177Mortgage loans on
			real estate:Commercial
			21,243,306
			
			21,173,962
			
			22,480,039
			
			23,517,378Residential
			29,810
			
			31,615
			
			32,399
			
			35,509Policy loans
			6,969,923
			
			6,969,923
			
			6,971,949
			
			6,971,949Other long-term
			investments
			883,678
			
			883,678
			
			1,021,741
			
			1,021,741Short-term
			investments
			-
			
			-
			
			25,000
			
			25,000Cash and cash
			equivalents
			2,816,813
			
			2,816,813
			
			2,819,257
			
			2,819,257Accrued
			investment income
			3,441,636
			
			3,441,636
			
			4,338,974
			
			4,338,974Cash value of
			company-ownedlife insurance
			8,414,816
			
			8,414,816
			
			7,764,223
			
			7,764,223Liabilities:Policyholder
			deposits(Investment-type contracts)
			$  51,231,331
			
			$  50,607,556
			
			$  51,491,954
			
			$  48,926,107Policy claims
			1,454,284
			
			1,454,284
			
			1,504,744
			
			1,504,744Obligations under
			capital leases
			177,509
			
			177,509
			
			284,307
			
			284,307Notes payable
			2,577,465
			
			2,268,982
			
			3,701,506
			
			3,485,607






The following methods and
assumptions were used in estimating the "fair value" disclosures for financial
instruments in the accompanying financial statements and notes thereto:



Fixed maturities and equity
securities:  The fair values for fixed maturities and equity securities
(including redeemable preferred stocks) are based on the principles previously
discussed in Note E.



Mortgage loans on real
estate:  The fair values for mortgage loans are estimated using discounted
cash flow analyses, using the actual spot rate yield curve in effect at the end
of each period.



Cash and cash equivalents,
short-term investments, policy loans, accrued investment income and other
long-term investments:  The carrying amounts reported for these financial
instruments approximate their fair values.



Cash value of company-owned
life insurance:  The carrying values and fair values for these policies are
based on the current cash surrender values of the policies.



Investment-type contracts: 
The fair value for liabilities under investment-type insurance contracts
(accumulation annuities) is calculated using a discounted cash flow approach. 
Cash flows were projected using actuarial assumptions and discounted to the
valuation date using risk-free rates adjusted for credit risk and the
nonperformance risk of the liabilities.



The fair values for insurance
contracts other than investment-type contracts are not required to be disclosed.



17



---





Policy claims and obligations
under capital leases:  The carrying amounts reported for these liabilities
approximate their fair value.



Notes payable:  The fair
values for notes payable on commercial loans with fixed interest rates are
estimated using discounted cash flow analyses, assuming current interest rate
assumptions for similar borrowings based on information gathered from market
loan brokers.  The fair value for notes payable with floating interest rates and
promissory notes approximate the unpaid principal balances on such notes.



NOTE F - Earnings per Share and Stock-Based
Compensation

Earnings per share of common stock were computed based on
the weighted average number of common shares outstanding during each period. The
weighted average number of shares outstanding for the three months ended
September 30, 2009 and 2008 were 1,126,157 and 1,117,670, respectively.  The
weighted average number of shares outstanding for the nine months ended
September 30, 2009 and 2008 were 1,131,731 and 1,115,714, respectively.



The Company's only outstanding stock options and stock
appreciation rights were issued in 1999. We recognize all share-based payments
to employees as compensation expense in the consolidated income statement
utilizing the modified prospective method. Under this method, our stock-based
compensation is reported in the balance sheets as a liability based on the
intrinsic value of the award, and compensation expense is measured as the change
in intrinsic value.



As of September 24, 2009, the previously issued and
outstanding 61,125 options expired and were not exercised.  We recognized no
change in compensation expense relative to the outstanding options for the three
months ended September 30, 2009 compared to a decrease in compensation expense
relative to the outstanding options of $33,619 for the three months ended
September 30, 2008.  We recognized a decrease in compensation expense relative
to the outstanding options of $213,938 for the nine months ended September 30,
2009 compared to a decrease in compensation expense of $241,444 associated with
such options for the nine months ended September 30, 2008. These changes in
compensation expense were based on changes in the market value of the Company's
stock compared to the exercise price of the options as of those dates.



18



---





NOTE G - Segment Data

We operate in four segments as shown in the following
table. All segments include both individual and group insurance. Identifiable
revenues and expenses are assigned directly to the applicable segment. Net
investment income is generally allocated to the insurance and the corporate
segments in proportion to policy liabilities and stockholders' equity,
respectively. Realized gains and losses, including realized losses as a result
of other-than-temporary impairments, are allocated to the Corporate and Other
segment.  Investors Heritage Financial revenue and income associated with credit
administrative services is assigned to that segment, with any remaining revenue
and income assigned to the Corporate and Other segment.  Results for the parent
company, Investors Heritage Printing, At Need Funding and Heritage Funding,
after elimination of intercompany amounts, are allocated to the Corporate and
Other segment.



Quarter Ended September 30,
			
			Nine Months Ended September 30,2009
			
			2008
			
			2009
			
			2008Revenue:Preneed and burial products
			$ 10,076,652
			
			$ 10,211,243
			
			$ 29,715,427
			
			$ 29,561,499Traditional and universal life products
			2,465,125
			
			2,482,270
			
			7,476,965
			
			8,075,527Credit insurance products andadministrative services
			66,355
			
			108,515
			
			243,451
			
			311,655Corporate and other
			1,099,567
			
			(2,603,337)
			
			821,762
			
			(1,994,873)$ 13,707,699
			
			$ 10,198,691
			
			$ 38,257,605
			
			$ 35,953,808Pre-tax income (loss) from operations:Preneed and burial products
			$      504,928
			
			$      491,347
			
			$      256,844
			
			$       (47,332)Traditional and universal life products
			56,724
			
			160,428
			
			90,142
			
			320,478Credit insurance products andadministrative services
			49,165
			
			73,993
			
			155,100
			
			218,463Corporate and other
			772,983
			
			(2,733,118)
			
			146,603
			
			(2,221,995)$    1,383,800
			
			(2,007,350)
			
			$      648,689
			
			$  (1,730,386)






NOTE H - Federal Income Taxes

The provision for federal income taxes is based on the
estimated effective annual tax rate. Deferred taxes reflect the net tax effects
of temporary differences between the carrying amounts of assets and liabilities
for financial reporting purposes and the amounts used for income tax purposes.
Income before federal income taxes differs from taxable income principally due
to the dividends-received deduction, the 404(k) dividend deduction and the small
life insurance company tax deduction.



We file U.S. federal income tax returns and income tax
returns in various state jurisdictions. Our 2006 through 2008 U.S. federal tax
years remain subject to income tax examination by tax authorities.  We have no
known uncertain tax benefits within our provision for income taxes. In addition,
we do not believe the Company will be subject to any penalties or interest
relative to any open tax years and, therefore, have not accrued any such
amounts.  However, should such a circumstance arise, it is our policy to
classify any interest and penalties (if applicable) as income tax expense in the
financial statements.



19



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NOTE I - Comprehensive Income (Loss)

The components of comprehensive income (loss), net of
related federal income taxes, are as follows:



Quarter Ended September 30,
			
			Nine Months Ended September 30,2009
			
			2008
			
			2009
			
			2008Total net unrealized gains (losses)arising during the period
			$    6,562,204
			
			$    (5,615,934)
			
			$   8,437,166
			
			$   (8,350,031)Less: Net realized investment gains (losses)
			709,595
			
			(2,907,145)
			
			(156,981)
			
			(2,907,527)Net unrealized gains (losses)
			5,852,609
			
			(2,708,789)
			
			8,594,147
			
			(5,442,504)Change in unrealized pension benefits
			92,267
			
			40,723
			
			276,800
			
			122,168Change in fair value of hedging instrument
			1,133
			
			(746)
			
			3,553
			
			2,749Net income (loss)
			1,006,853
			
			(1,530,901)
			
			471,986
			
			(1,319,675)Total comprehensive income (loss)
			$    6,952,862
			
			$    (4,199,713)
			
			$   9,346,486
			
			$   (6,637,262)






Realized gains and losses on the sales of investments are
determined based upon the specific identification method and include provisions
for other-than-temporary impairments where appropriate.



NOTE J - Employee Benefit Plans

We sponsor a noncontributory defined benefit pension plan
which covers substantially all employees. Benefits are based on years of service
and the highest consecutive 60 months average earnings within the last 120
months of credited service. Benefits are funded based on actuarially-determined
amounts.



The following table provides the components of our net
periodic benefit cost:



Quarter Ended September 30,
			
			Nine Months Ended September 30,2009
			
			2008
			
			2009
			
			2008Service cost
			$        94,516
			
			$        92,727
			
			$      283,548
			
			$      278,183Interest cost
			235,174
			
			218,053
			
			705,521
			
			654,161Expected return on plan assets
			(170,573)
			
			(229,467)
			
			(511,717)
			
			(688,403)Recognized net loss
			139,798
			
			61,701
			
			419,394
			
			185,103Net periodic benefit cost
			$      298,915
			
			$      143,014
			
			$      896,746
			
			$      429,044






We previously disclosed in our financial statements for
the year ended December 31, 2008 that we expected to contribute $972,000 to our
pension plan in 2009. As of September 30, 2009, $729,000 had been contributed.
We presently anticipate contributing an additional $243,000 to fund our pension
plan in 2009.



NOTE K - Notes Payable

Effective September 29, 2009, the Company entered into a
$2,000,000 line of credit for At Need Funding, maturing on September 29, 2010. 
On September 16, 2009, the Company also entered into a $150,000 operating line
of credit, maturing on September 16, 2010.  Both of these lines of credit were
with a new provider as replacements for previously existing lines of credit that
were not renewed at June 30, 2009.  These lines of credit require interest to be
paid monthly at the prime rate, with a floor of 3.25%.  As of September 30,
2009, there were no outstanding balances relative to these lines of credit.



NOTE L - Subsequent Events

Subsequent events or transactions have been evaluated for
potential recognition or disclosure through November 12, 2009, which is the date
that the financial statements have been issued.



20





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ITEM 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations



GENERAL



Investors
Heritage Capital Corporation (formerly known as Kentucky Investors, Inc. prior
to name change effective June 1, 2009) is incorporated under the laws of the
Commonwealth of Kentucky and wholly owns Investors Heritage Life Insurance
Company, a life insurance company also incorporated under the laws of the
Commonwealth of Kentucky. Investors Heritage Capital also wholly owns Investors
Heritage Financial Services Group, Inc., a Kentucky insurance marketing company;
Investors Heritage Printing, Inc., a Kentucky printing company that provides
printing to Investors Heritage Life and other unaffiliated parties; is the sole
member of At Need Funding, LLC, a Kentucky limited liability company that
provides advance funding of funerals in exchange for the irrevocable assignment
of life insurance policies from other nonaffiliated companies; and is the sole
member of Heritage Funding, LLC, a limited liability company that invests in
various business ventures.



Investors
Heritage Life offers a full line of life insurance products including, but not
limited to, whole life, term life, single premium life, multi-pay life and
annuities. Investors Heritage Life's primary lines of business are insurance
policies and annuities utilized to fund preneed funeral contracts, credit life
and credit disability insurance, and term life and reducing term life sold
through financial institutions.



In late 2007, we introduced the Legacy Gold product series, a generation of life
insurance and annuity products marketed in conjunction with prearranged
funerals.  As a part of the process, we performed detailed analysis of the
preneed market and of the characteristics of our particular block of business. 
We believe that the result of these efforts is a very marketable product that
balances profitability with competitive commissions and death benefit growth to
provide adequate proceeds to cover funeral expenses and personal needs. 
Underwritten and guaranteed issue options are available.  This product series
replaced the Legacy Protector and Legacy Preferred series of life insurance and
annuity products during early 2008.



The Heritage Final Expense product is sold in the final expense markets. 
Introduced in 2002, it is reinsured on an 80% quota share basis exclusively with
Munich American Reassurance Company.  This reinsurance arrangement has helped to
reduce first year statutory surplus strain associated with new sales and should
provide a stable profit stream for the future.  During the fourth quarter of
2008, this product was replaced by the new Heritage Final Expense II product,
which incorporates the 2001 CSO table while also improving the marketability and
profitability of the product.



In late 2008 we updated two of our products within this line to incorporate the
2001 CSO table while enhancing the marketability and profitability of these
products.  The HLW Choice Whole Life replaced the Life Paid Up at 95 and the
Heritage Protector IV replaced the Heritage Protector III.



Investors
Heritage Life continues to market its third-party administrative ("TPA")
services as an additional revenue source.  We currently have six TPA clients for
which we provide tailored services to meet each client's individual business
needs. We have been able to perform services for these clients using our
existing in-house resources.



Our primary uses
of cash are ongoing operating expenses, debt service and dividend payments. Our
principal sources of cash are the dividends paid to us by Investors Heritage
Life and Investors Heritage Financial in addition to rent paid by Investors
Heritage Life under the terms of a building lease. Investors Heritage Life's
principal sources of cash are proceeds received from the sale of life insurance
policies, administrative service fees and investment income, including realized
gains (losses), less interest credited and benefits to policyholders and
expenses.



21



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CRITICAL
ACCOUNTING POLICIES AND ESTIMATES



The discussion
and analysis of our financial condition and results of operations are based on
our consolidated financial statements, which have been prepared in accordance
with U.S. generally accepted accounting principles. Preparation of these
financial statements requires us to make estimates and judgments that affect the
reported amounts of assets, liabilities, revenues and expenses. We evaluate our
estimates continually, including those related to investments, deferred
acquisition costs, present value of future profits, policy liabilities, income
taxes, accrued pension expense, regulatory requirements, contingencies and
litigation. We base such estimates on historical experience and other
assumptions believed to be reasonable under the circumstances, the results of
which form the basis for making judgments about the carrying values of assets
and liabilities that are not readily apparent from other sources. Actual results
may differ from these estimates under different assumptions or conditions. We
believe the following accounting policies, judgments and estimates are the most
critical to the preparation of our consolidated financial statements.



Investments
in Fixed Maturities, Equity Securities and Mortgage Loans

We hold fixed maturities and equity interests in a variety of companies. 
Additionally, we originate, underwrite and manage mortgage loans.  We
continuously evaluate all of our investments based on current economic
conditions, credit loss experience and other developments.  We evaluate the
difference between the cost/amortized cost and estimated fair value of our
investments to determine whether any decline in value is other-than-temporary in
nature.  This determination involves a degree of uncertainty.  If a decline in
the fair value of a security is determined to be temporary, the decline is
recorded as an unrealized loss in stockholders' equity. If a decline in a
security's fair value is considered to be other-than-temporary, we then
determine the proper treatment for the other-than-temporary impairment. 
For fixed maturities, the amount of any other-than-temporary impairment related
to a credit loss is recognized in earnings and reflected as a reduction in the
cost basis of the security; and the amount of any other-than-temporary
impairment related to other factors is recognized in other comprehensive income
(loss) with no change to the cost basis of the security.  For equity securities,
the amount of any other-than-temporary impairment is recognized in earnings and
reflected as a reduction in the cost basis of the security.



The assessment of whether a decline in fair value is considered temporary or
other-than-temporary includes management's judgment as to the financial position
and future prospects of the entity issuing the security. It is not possible to
accurately predict when it may be determined that a specific security will
become impaired.  Future adverse changes in market conditions, poor operating
results of underlying investments and defaults on mortgage loan payments could
result in losses or an inability to recover the current carrying value of the
investments, thereby possibly requiring an impairment charge in the future. 
Likewise, if a change occurs in our intent to sell temporarily impaired
securities prior to maturity or recovery in value, or if it becomes more likely
than not that we will be required to sell such securities prior to recovery in
value or maturity, a future impairment charge could result.



If an
other-than-temporary impairment related to a credit loss occurs with respect to
a bond, we amortize the reduced book value back to the security's expected
recovery value over the remaining term of the bond.  We continue to review the
security for further impairment that would prompt another write-down in the
value.



Deferred
Acquisition Costs

The recovery of deferred acquisition costs is dependent on the future
profitability of the underlying business for which acquisition costs were
incurred.  Each reporting period, we evaluate the recoverability of the
unamortized balance of deferred acquisition costs.  We consider estimated future
gross profits or future premiums, expected mortality or morbidity, interest
earned and credited rates, persistency and expenses in determining whether the
balance is recoverable.  If we determine a portion of the unamortized balance is
not recoverable, it is immediately charged to amortization expense.  The
assumptions we use to amortize and evaluate the recoverability of the deferred
acquisition costs involve significant judgment.  A revision to these assumptions
may impact future financial results.



22



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Deferred acquisition costs related
to annuities and universal life insurance products is deferred to the extent
deemed recoverable and amortized in relation to the present value of actual and
expected gross profits on the policies. To the extent that realized gains and
losses on securities result in adjustments to deferred acquisition costs related
to annuities, such adjustments are reflected as a component of the amortization
of deferred acquisition costs.



Deferred acquisition costs related
to annuities are also adjusted, net of tax, for the change in amortization that
would have been recorded if the unrealized gains (losses) from securities had
actually been realized. This adjustment is included in the change in net
unrealized appreciation (depreciation) on available-for-sale securities, a
component of "Accumulated Other Comprehensive Income (Loss)" in the
stockholders' equity section of the balance sheet.



Policy
Liabilities

Estimating liabilities for our long-duration insurance contracts requires
management to make various assumptions, including policyholder persistency,
mortality rates, investment yields, discretionary benefit increases, new
business pricing, and operating expense levels.  We evaluate historical
experience for these factors when assessing the need for changing current
assumptions.  However, since many of these factors are interdependent and
subject to short-term volatility during the long-duration contract period,
substantial judgment is required.  Actual experience may emerge differently from
that originally estimated.  Any such difference would be recognized in the
current year's consolidated statement of income.



Income
Taxes

We evaluate our deferred income tax assets, which partially offset our deferred
tax liabilities, for any necessary valuation allowances.  In doing so, we
consider our ability and potential for recovering income taxes associated with
such assets, which involve significant judgment.  Revisions to the assumptions
associated with any necessary valuation allowances would be recognized in the
financial statements in the period in which such revisions are made.



Accrued
Pension Expense

We maintain a defined benefit retirement plan on behalf of our employees. 
Measurement of the future benefit obligations associated with this plan involves
significant judgment, particularly in regard to the expected long-term rate of
return on plan assets, rate of compensation increases and the current discount
rate used to calculate the present value of future obligations.  Changes in
these assumptions can significantly impact the accrued pension liability and net
periodic benefit expense recorded in the financial statements.



The Pension Protection Act of 2006 was passed by legislators and signed by the
President on August 17, 2006 to address the funding mechanisms of pension plans.
The Act alters the traditional formula under which plan liabilities must be
funded, and it may result in significantly increased future funding costs
depending on investment returns.  Although increased contributions are not yet
required under the funding formula, we have voluntarily increased the projected
contribution to our pension plan for 2009 by approximately $100,000 above our
prior year contribution.



23



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New
Accounting Pronouncements

In April 2009, the FASB issued new guidance regarding the recognition and
presentation of other-than-temporary impairments.  The new guidance requires
entities to separate an other-than-temporary impairment of a fixed maturity
security into two components when there are credit related and non-credit
related losses associated with the impaired fixed maturity security for which
management asserts that it does not have the intent to sell the security, and it
is not more likely than not that it will be required to sell the security before
recovery of its cost basis.  The amount of the other-than-temporary impairment
related to a credit loss is recognized in earnings, and the amount of the
other-than-temporary impairment related to other factors is recognized in other
comprehensive income (loss).  We elected to early adopt this guidance effective
January 1, 2009.  As a result of the adoption of this guidance, we recognized a
cumulative effect adjustment of $272,157 (net of deferred income tax of
$137,326) to move non-credit related other-than-temporary impairments previously
recognized in earnings for the year ended December 31, 2008 from retained
earnings to accumulated other comprehensive income (loss) for fixed maturity
securities held at the date of adoption.



In April 2009, the FASB issued new guidance to clarify fair valuation in
inactive markets and includes all assets and liabilities subject to fair value
measurements.  Under this guidance, if an entity determines that there has been
a significant decrease in the volume and level of activity for the asset or the
liability in relation to the normal market activity for the asset or liability
(or similar assets or liabilities), then transactions or quoted prices may not
accurately reflect fair value.   In addition, if there is evidence that the
transaction for the asset or liability is not orderly, the entity shall place
little, if any weight on that transaction price as an indicator of fair value.  
We elected to early adopt this guidance effective January 1, 2009, and its
adoption did not have a material impact on our consolidated financial condition
or results of operations.



In April 2009, the FASB issued new guidance to expand the fair value disclosures
required for financial instruments for interim periods.  The guidance also
requires entities to disclose the methods and significant assumptions used to
estimate the fair value of financial instruments in financial statements on an
interim and annual basis and to highlight any changes from prior periods.  This
guidance was effective for periods ending after June 15, 2009, with early
adoption permitted for periods ending after March 15, 2009.   We adopted this
guidance effective for the second quarter of 2009.



Refer to Notes D
and E to our condensed consolidated financial statements for more explanation of
the above-mentioned new pronouncements as well as for the required disclosures.



In May 2009, the FASB issued new guidance that established general accounting
standards and disclosure for events occurring subsequent to the balance sheet
date but before the financial statements are issued.  This guidance became
effective for interim and annual accounting periods ending after June 15,
2009.  The Company adopted this guidance upon issuance, with no material impact
to the consolidated financial statements.  Refer to Note L to our condensed
consolidated financial statement for disclosures relative to subsequent events.



In June 2009, the FASB issued guidance to reorganize existing U.S. accounting
and reporting standards issued by the FASB and other private sector standard
setters into a single source of authoritative accounting principles arranged by
topic (the "Codification"). The Codification replaced previous guidance related
to the same issue and became effective for interim and annual reporting periods
ending after September 15, 2009.  The Company adopted it upon issuance, with no
material impact to the consolidated financial statements.



INVESTMENTS, LIQUIDITY AND CAPITAL RESOURCES



Investments

Investors
Heritage Life maintains a sound, conservative investment strategy. At September
30, 2009, 90.0% of invested assets consisted of fixed income securities compared
to 89.2% at December 31, 2008. At September 30, 2009 and December 31, 2008,
Investors Heritage Life's fixed income investments were 98.1% and 99.9%
investment grade, respectively, as rated by Standard & Poor's.



24





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Based on our review, the Company recorded two other-than-temporary impairments
during the second quarter of 2009.  The Company impaired its $2,000,000 par
value CIT Group Holdings bond as a result of recent negative information
relative to a potential government bailout.  This impairment was considered
fully credit-related, resulting in a charge to the income statement before tax
of $954,877 as of June 30, 2009.  This charge represents the difference between
the amortized cost basis of the security and its fair value as management cannot
assert that it does not have the intent to sell the security.  The Company also
impaired an ALCOA bond as of June 30, 2009, based on its intent to sell the
security before recovery, generating a pre-tax credit-related loss of $22,953. 
The Company sold these bonds during the third quarter of 2009 at an additional
realized loss of $267,299.  The Company has experienced no additional other-than
temporary impairments during 2009.



During 2008, we
recognized an other-than-temporary impairment loss relative to the two Lehman
Brothers Holdings bonds in our portfolio that are in default, each with a par
value of $2,000,000.  While we have written down these securities to fair value,
we continue to work with our investment advisor to estimate a recovery value on
the bonds.  Our current estimates are that we will ultimately recover anywhere
from approximately 21%-60% of the par value on the bonds.  We are amortizing the
bond values up to the low end of this range, and we do not intend to sell these
securities nor is it more likely than not that we will be required to sell these
securities in expectation of future recoveries.



We have reviewed
our investment portfolio and do not believe that there are additional securities
that are other-than-temporarily impaired at September 30, 2009 beyond those
impairments already taken.  Other than the Lehman Brothers Holdings bonds, none
of Investors Heritage Life's fixed income assets are in default and there has
been no material change in the distribution of its fixed income portfolio.



We continuously monitor the investment risk within our portfolio, including the
risk associated with subprime lending with our CMO investments.  As of September
30, 2009, we have only one CMO, with a fair value of approximately $51,000,
which has any level of direct subprime exposure.  Based on our analysis, we
believe this investment is of high quality and expect no losses as a result of
the current subprime concerns.



Additionally,
Investors Heritage Life engages in commercial and residential mortgage lending,
with approximately 99.9% of these investments being in commercial properties.
All mortgage loans are either originated in-house or through two mortgage
brokers, and all loans are secured by first mortgages on the real estate.  Loan
to value ratios of 80% or less and debt service coverage from existing cash
flows of 115% or higher are generally required.  We minimize credit risk in our
mortgage loan portfolio through various methods, including stringently
underwriting the loan request, maintaining small average loan balances,
reviewing larger mortgage loans on an annual basis and diversifying the
portfolio by property type.  At September 30, 2009, 6.3% of invested assets
consisted of mortgage loans compared to 7.0% at December 31, 2008. We anticipate
maintaining a similar to slightly higher percentage of mortgage loans to total
invested assets into the near future. As of September 30, 2009, Investors
Heritage Life had one non-performing mortgage loan, which would include loans
past due 180 days or more, loans in process of foreclosure, restructured loans
and real estate acquired through foreclosure.  The outstanding balance on this
loan was $162,744 at September 30, 2009.  This loan was repaid in full
subsequent to the end of the quarter.



25



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Liquidity
and Capital Resources

Premiums, which
include mortality and expense charges, investment income and administrative
service fees are Investors Heritage Life's primary sources of cash flow used to
meet short-term and long-term cash requirements.



Investors
Heritage Life's short-term obligations consist primarily of policyholder
benefits and operating expenses. Investors Heritage Life has historically been
able to meet these obligations out of operating cash, premiums and investment
income.



Investors
Heritage Life's principal long-term obligations are fixed contractual
obligations incurred in the sale of its life insurance products. The premiums
charged for these products are based on conservative and actuarially sound
assumptions as to mortality, persistency and interest. We believe these
assumptions will produce revenues sufficient to meet our future contractual
benefit obligations and operating expenses, and provide an adequate profit
margin.



Investors
Heritage Life's conservative approach in the product development area and the
strength and stability of its fixed income and mortgage loan portfolios provide
adequate liquidity both in the short-term and the long-term.



Investors
Heritage Capital's principal sources of cash flow are rental income and
dividends from its subsidiaries. Investors Heritage Capital's principal
long-term obligations are payments on long-term debt.



We assess our
compliance with prescribed debt covenant requirements as outlined in the terms
of each debt agreement at least annually, if not otherwise required in the debt
agreement.  Management has assessed our position and as of September 30, 2009,
we are in compliance with all debt covenant requirements.



We are not aware
of any commitments or unusual events that could materially affect capital
resources. We have the option to prepay certain notes payable at our discretion
prior to their maturity dates.



We will continue
to explore various opportunities including mergers and acquisitions and
purchasing blocks of business from other companies, which may dictate a need for
either long-term or short-term debt.  There are no restrictions as to use of
funds except the restriction on Investors Heritage Life as to the payment of
cash dividends to Investors Heritage Capital.



Effective
September 29, 2009, the Company entered into a $2,000,000 line of credit for At
Need Funding, maturing on September 29, 2010.  On September 16, 2009, the
Company also entered into a $150,000 operating line of credit, maturing on
September 16, 2010.  Both of these lines of credit were with a new provider as
replacements for previously existing lines of credit that were not renewed at
June 30, 2009.  These lines of credit require interest to be paid monthly at the
prime rate, with a floor of 3.25%.  As of September 30, 2009, there were no
outstanding balances relative to these lines of credit.



RESULTS OF
OPERATIONS



Overview

Premiums earned
(net of reinsurance) were $8,342,858 for the third quarter of 2009 (a decrease
of 1.0% compared to the third quarter of 2008) and $24,466,338 for the nine
months ended September 30, 2009 (a decrease of 0.9% compared to the
corresponding period in 2008).  The current poor economic conditions continue to
limit disposable income typically used as a source for new sales in many of our
markets.



26



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Net investment
income was $4,327,540 for the third quarter of 2009 (a decrease of 1.7% compared
to the third quarter of 2008) and $13,111,084 for the nine months ended
September 30, 2009 (a decrease of 1.8% compared to the corresponding period in
2008).  The fluctuating economic environment continues to put pressure on new
investment yields.



Net realized
gains (losses) were $709,595 and ($156,981) for the three and nine month periods
ended September 30, 2009.  The year-to-date losses were primarily driven by the
realized loss taken on our CIT Group Holdings bond, as previously discussed. 
This loss was somewhat offset during the third quarter by gains taken on the
sale of certain securities nearing maturity in the next few years.



Total revenue was
$13,707,699 for the third quarter of 2009 (an increase of 34.4% compared to the
third quarter of 2008) and $38,257,605 for the nine months ended September 30,
2009 (an increase of 6.4% compared to the corresponding period in 2008).  These
increases primarily reflect the other-than-temporary impairment charge taken on
Lehman Brothers bonds during the third quarter of 2008.



Total benefits
and expenses were $12,323,899 in the third quarter of 2009 (an increase of 1.0%
compared to the third quarter of 2008) and $37,608,916 for the nine months ended
September 30, 2009 (a decrease of 0.2% compared to the corresponding period in
2008).  While employee salary and benefit expenses have increased since prior
year, these increases have been somewhat offset by the decrease in new business
generated coupled with the allowable reduction of certain death benefit
crediting rates.



After providing
for federal income taxes, our net income was $1,006,853 with earnings per share
of $0.89 for the third quarter of 2009 as compared to a net loss of $1,530,901
and a net loss per share of $1.37 for the third quarter of 2008.  Our net income
for the nine months ended September 30, 2009 was $471,986 with earnings per
share of $0.42 compared with a net loss of $1,319,675 and a net loss per share
of $1.18 for the nine months ended September 30, 2008.



In light of
recent losses due to other-than-temporary impairments, we elected not to pay our
typical annual dividend during 2009.



Business
Segments

We internally
evaluate the performance of our operations by the following four business
segments:



Preneed and
Burial Products include both life and annuity products sold by funeral directors
or affiliated agents to fund prearranged funerals. Revenues for this segment
were $10,076,652 for the third quarter of 2009 (a decrease of 1.3% compared to
the third quarter of 2008) and $29,715,427 for the nine months ended September
30, 2009 (an increase of 0.5% compared to the corresponding period in 2008).
 The small decrease for the quarter is driven by the current poor economic
conditions, however, sales remain up slightly year-to-date for the Legacy Gold
preneed product series.  Pre-tax income from operations was $504,928 and
$256,844 for the three and nine month periods ended September 30, 2009 compared
to pre-tax income (loss) from operations of $491,347 and ($47,332) for the three
and nine month periods ended September 30, 2008.  This improvement was driven by
the corresponding increase in sales revenue, favorable claims history compared
to prior periods and the allowable reduction of certain death benefit crediting
rates.



27



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Traditional and
Universal Life Products include traditional life and group life insurance
products, certain annuities and universal life products. Revenues for this
segment were $2,465,125 for the third quarter of 2009 (a decrease of 0.7%
compared to the third quarter of 2008) and $7,476,965 for the nine months ended
September 30, 2009 (a decrease of 7.4% compared to the corresponding period in
2008).  Revenues on this segment are primarily derived from the sale of term
insurance products through banks, for which demand fluctuates along with
economic conditions. New sales have suffered due to the tightening of consumer
credit markets.  Pre-tax income from operations was $56,724 and $90,142 for the
three and nine month periods ended September 30, 2009 compared to pre-tax income
of $160,428 and $320,478 for the three and nine month periods ended September
30, 2008. The changes in pre-tax income are primarily attributable to lower
sales coupled with fluctuations in death claims between periods.



Credit Insurance
Products and Administrative Services include the marketing and administration of
credit life and credit accident and health insurance products. We reinsure 100%
of the related underwriting risk currently produced within this segment.
 Accordingly, revenue is generated primarily from servicing and administering
the credit business for our reinsurers. Because the revenue is fee-based,
segment performance is in direct relation to new premium production coupled with
fees generated as premiums are earned. Premium production within this segment is
also significantly affected by economic conditions within our credit markets,
particularly Kentucky.  Revenues for this segment were $66,355 for the third
quarter of 2009 (a decrease of 38.9% compared to the third quarter of 2008) and
$243,451 for the nine months ended September 30, 2009 (a decrease of 21.9%
compared to the corresponding period in 2008).  Pre-tax income from operations
was $49,165 and $155,100 for the three and nine month periods ended September
30, 2009 compared to $73,993 and $218,463 for the three and nine month periods
ended September 30, 2008.  These decreases in revenue and pre-tax income are
directly related to lower premium production within this segment of the business
due to current economic and lending conditions.



Corporate and
Other consists of corporate accounts measured primarily by stockholders' paid-in
capital, contributed surplus, earned surplus, property and equipment, and other
minor business lines which include group annuities and group and individual
accident and health products. This segment also includes fees generated from our
TPA arrangements as well as the impact of realized investment gains and losses.
 Revenues, including net realized investment gains (losses), for this segment
were $1,099,567 and $821,762 for the three and nine month periods ended
September 30, 2009.  Pre-tax income from operations was $772,983 and $146,603
for the three and nine month periods ended September 30, 2009. The current
period improvement over prior periods was due to the fact that we sold certain
near-term bonds to take capital gains in an effort to offset the loss
experienced on the CIT bond.  The negative results in prior year were also the
result of the other-than-temporary impairment taken on Lehman Brothers bonds, as
previously discussed.



While we continue
to expand the operations of Investors Heritage Financial, Investors Heritage
Printing, At Need Funding and Heritage Funding, approximately 1% of our
consolidated revenues were generated by those subsidiaries. Approximately 8% of
Investors Heritage Financial's revenue for the nine months ended September 30,
2009 was derived from the sale of Investors Heritage Life's credit insurance
products. During the first nine months of 2009, Investors Heritage Capital
received dividends from Investors Heritage Financial totaling $83,000 and
received distributions from At Need Funding of $33,000. We anticipate further
dividend payments from Investors Heritage Financial and distributions from At
Need Funding during the remainder of 2009.



Federal
Income Taxes

The provision for
federal income taxes is based on the estimated effective annual tax rate.
Deferred taxes reflect the net tax effects of temporary differences between the
carrying amounts of assets and liabilities for financial reporting purposes and
the amounts used for income tax purposes. Income before federal income taxes
differs from taxable income principally due to the dividends-received deduction,
the 404(k) dividend deduction and the small life insurance company tax
deduction. The effective tax rate was 27.2% for both the three and nine month
periods ended September 30, 2009, respectively, compared to 23.7% for both the
three and nine month periods ended September 30, 2008.



OFF-BALANCE
SHEET ARRANGEMENTS



We have no
off-balance sheet arrangements as of September 30, 2009.



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FORWARD
LOOKING INFORMATION



We caution
readers regarding certain forward-looking statements contained in this report
and in any other statements made by us or on our behalf, whether or not in
future filings with the Securities and Exchange Commission. Forward-looking
statements are statements not based on historical information and which relate
to future operations, strategies, financial results, or other developments.
Statements using verbs such as "expect", "anticipate", "believe" or words of
similar import generally involve forward-looking statements. Without limiting
the foregoing, forward-looking statements include statements which represent our
beliefs concerning future levels of sales and redemptions of Investors Heritage
Life's products, investment spreads and yields, or our earnings and
profitability.



Forward-looking
statements are necessarily based on estimates and assumptions that are
inherently subject to significant business, economic and competitive
uncertainties and contingencies, many of which are beyond our control and many
of which are subject to change. These uncertainties and contingencies could
cause actual results to differ materially from those expressed in any
forward-looking statements made by us or on our behalf. Whether or not actual
results differ materially from forward-looking statements may depend on numerous
foreseeable and unforeseeable factors and developments. Some of these may be
national in scope, such as general economic conditions, changes in tax law and
changes in interest rates. Some may be related to the insurance industry
generally, such as pricing competition, regulatory developments, industry
consolidation and the effects of competition in the insurance business from
other insurance companies and other financial institutions operating in our
market area and elsewhere. Others may relate to us specifically, such as credit,
volatility and other risks associated with our investment portfolio. We caution
that such factors are not exclusive. We disclaim any obligation to update
forward-looking information.





ITEM 4T. Controls and Procedures



As of the end of
the period covered by this Form 10-Q, we performed an evaluation, under the
supervision and with the participation of management, including our Company's
Chief Executive Officer and Chief Financial Officer, of the effectiveness of the
design and operation of our disclosure controls and procedures as defined in
Rules 13a-15(e) and 15d-15(e) of the Securities Exchange Act of 1934. Based upon
that evaluation, the Chief Executive Officer and Chief Financial Officer
concluded that our disclosure controls and procedures are effective in timely
alerting them to material information relating to the Company (including its
consolidated subsidiaries) required to be included in this Quarterly Report on
Form 10-Q. There have been no significant changes in our internal controls or in
other factors which could significantly affect internal controls over financial
reporting during this most recent quarter or subsequent to the date we carried
out our evaluation.



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PART II - OTHER INFORMATION




ITEM 1. Legal Proceedings



Investors
Heritage Capital is not involved in any legal proceedings. From time to time
Investors Heritage Life is involved in litigation relating to claims arising out
of its operations in the normal course of business. As of November 12, 2009,
Investors Heritage Life is not a party to any legal proceedings, the adverse
outcome of which, in management's opinion, individually or in the aggregate,
would have a material adverse effect on our financial condition or results of
operations.



ITEM 2.
Unregistered Sales of Equity Securities and Use of Proceeds



No share
repurchases were made pursuant to a publicly announced plan or program. All
share repurchases were shares tendered by original stockholders under our right
of first refusal or by employees as part of our 401(k) plan.



ITEM 3.
Defaults Upon Senior Securities



None



ITEM 4.
Submission of Matters to a Vote of Security Holders



None



ITEM 5. Other
Information



None



ITEM 6.
Exhibits



31.1 & 
			31.2
			Certifications pursuant to Securities and Exchange
			Act Rule 13a-14(a)/15d-14(a), as adopted pursuant to Section 302 of
			the Sarbanes-Oxley Act of  2002.32.1
			Certifications Pursuant to 18 U.S.C. Section 1350, as
			adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.




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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.





INVESTORS HERITAGE CAPITAL CORPORATIONBY: /s/Harry Lee Waterfield IIHarry Lee Waterfield IIDATE: November 12, 2009
			PresidentBY: /s/Raymond L. CarrRaymond L. CarrDATE: November 12, 2009
			Vice President - Chief Financial Officer




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