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 June 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 August 14, 2009 -- 1,130,536.256



---



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
			31ITEM 6.
			Exhibits
			31SIGNATURES
			
			32EXHIBIT 31.1
			
			33EXHIBIT 31.2
			
			35EXHIBIT 32
			
			37




---



PART I -- FINANCIAL INFORMATION




ITEM
1.  Condensed Consolidated Financial Statements



INVESTORS HERITAGE CAPITAL CORPORATION

Condensed Consolidated Balance Sheets (Unaudited)



June 30,
			
			December 31,ASSETS
			
			2009
			
			2008Investments:Securities available-for-sale, at fair
			value:Fixed maturities (amortized cost:
			$284,082,610 and $282,335,626)
			
			$  290,750,132
			
			$  285,430,376Equity securities (cost: $4,052,600 and
			$4,040,062)
			
			4,219,448
			
			3,938,177Mortgage loans on real estate
			
			22,348,692
			
			22,512,438Policy loans
			
			6,977,474
			
			6,971,949Other long-term investments
			
			927,209
			
			1,021,741Short-term investments
			
			-
			
			25,000Total investments
			
			325,222,955
			
			319,899,681Cash and cash equivalents
			
			2,528,989
			
			2,819,257Accrued investment income
			
			4,258,007
			
			4,338,974Due premiums
			
			3,402,790
			
			3,618,390Deferred acquisition costs
			
			19,568,801
			
			19,882,671Present value of future profits
			
			21,614
			
			30,260Leased property under capital leases
			
			207,471
			
			283,695Property and equipment
			
			1,660,709
			
			1,702,331Cash value of company-owned life insurance
			
			7,904,794
			
			7,764,223Other assets
			
			314,340
			
			338,182Amounts recoverable from reinsurers
			
			47,835,662
			
			49,523,594$  412,926,132
			
			$  410,201,258LIABILITIES AND STOCKHOLDERS' EQUITYLIABILITIESPolicy liabilities:Benefit reserves
			
			$  341,925,931
			
			$  342,065,366Unearned premium reserves
			
			10,900,910
			
			12,154,938Policy claims
			
			1,514,995
			
			1,504,744Liability for deposit-type contracts
			
			2,781,380
			
			2,733,214Reserves for dividends and endowments and
			other
			
			539,732
			
			524,797Total policy liabilities
			
			357,662,948
			
			358,983,059Deferred federal income tax liability
			
			2,356,239
			
			1,292,352Obligations under capital leases
			
			209,692
			
			284,307Notes payable
			
			3,346,075
			
			3,701,506Accrued pension liability
			
			5,474,176
			
			5,641,941Other liabilities
			
			2,970,370
			
			1,990,538Total liabilities
			
			372,019,500
			
			371,893,703STOCKHOLDERS' EQUITYCommon stock (shares issued:  1,129,466 and
			1,120,686)
			
			1,129,466
			
			1,120,686Paid-in surplus
			
			8,688,005
			
			8,705,492Accumulated other comprehensive income
			(loss)
			
			113,921
			
			(2,542,413)Retained earnings
			
			30,975,240
			
			31,023,790Total stockholders' equity
			
			40,906,632
			
			38,307,555$  412,926,132
			
			$  410,201,258




See notes to
consolidated financial statements.



4



---



INVESTORS HERITAGE CAPITAL CORPORATION

Condensed Consolidated Income Statements (Unaudited)





Quarter Ended June 30,
			
			Six
			Months Ended June 30,2009
			
			2008
			
			2009
			
			2008REVENUEPremiums and other considerations
			$  10,805,292
			
			$  11,701,374
			
			$  20,718,561
			
			$  22,477,264Premiums ceded
			(2,584,113)
			
			(3,489,408)
			
			(4,595,081)
			
			(6,226,941)Net premiums earned
			8,221,179
			
			8,211,966
			
			16,123,480
			
			16,250,323Investment income, net of expenses
			4,343,383
			
			4,512,816
			
			8,783,544
			
			8,953,255Net realized investment gains (losses)
			(936,182)
			
			1,089
			
			(866,576)
			
			(382)Other income
			292,693
			
			279,143
			
			509,458
			
			551,921Total revenue
			11,921,073
			
			13,005,014
			
			24,549,906
			
			25,755,117BENEFITS AND EXPENSESDeath and other benefits
			7,644,959
			
			7,864,875
			
			16,367,978
			
			16,621,343Guaranteed annual endowments
			143,952
			
			155,650
			
			276,375
			
			295,326Dividends to policyholders
			140,398
			
			172,291
			
			257,335
			
			302,293Increase in benefit reserves and unearned
			premiums
			1,083,326
			
			1,450,082
			
			1,477,895
			
			1,883,642Acquisition costs deferred
			(1,257,420)
			
			(1,206,231)
			
			(2,472,854)
			
			(2,356,107)Amortization of deferred acquisition costs
			1,393,088
			
			1,380,036
			
			2,618,399
			
			2,688,507Commissions
			629,765
			
			542,969
			
			1,144,904
			
			1,068,551Other insurance expenses
			2,843,278
			
			2,394,856
			
			5,614,985
			
			4,974,598Total benefits and expenses
			12,621,346
			
			12,754,528
			
			25,285,017
			
			25,478,153INCOME (LOSS) BEFOREFEDERAL INCOME TAXES
			(700,273)
			
			250,486
			
			(735,111)
			
			276,964PROVISION (BENEFIT) FORFEDERAL INCOME TAXESCurrent
			(12,285)
			
			87,140
			
			172,056
			
			133,975Deferred
			(179,690)
			
			(27,686)
			
			(372,300)
			
			(68,237)(191,975)
			
			59,454
			
			(200,244)
			
			65,738NET INCOME (LOSS)
			$     (508,298)
			
			$       191,032
			
			$     (534,867)
			
			$       211,226BASIC AND DILUTED NET EARNINGS(LOSS) PER SHARE
			$           (0.45)
			
			$             0.17
			
			$           (0.48)
			
			$             0.19DIVIDENDS PER SHARE
			$                 -
			
			$                 -
			
			$                 -
			
			$             0.38




See notes to
consolidated financial statements.



5



---



INVESTORS HERITAGE CAPITAL CORPORATION

Condensed
Consolidated Statements of Stockholders' Equity (Unaudited)



Common
			Stock
			
			Paid-in
			Surplus
			
			Accumulated
			Other
			Comprehensive
			Income (Loss)
			
			Retained
			Earnings
			
			Total
			Stockholders'
			EquityBALANCE, JANUARY 1, 2008
			$1,117,851
			
			$8,650,907
			
			$     1,902,238
			
			$32,886,104
			
			$ 44,557,100Comprehensive loss:Net income
			-
			
			-
			
			-
			
			211,226
			
			211,226Change in net unrealized appreciationon available-for-sale securities
			-
			
			-
			
			(2,733,715)
			
			-
			
			(2,733,715)Change in unrealized pension benefits
			-
			
			-
			
			81,445
			
			-
			
			81,445Change in fair value of hedging instrument
			-
			
			-
			
			3,495
			
			-
			
			3,495Total comprehensive loss
			
			
			
			
			
			
			
			
			(2,437,549)Cash dividends
			-
			
			-
			
			-
			
			(422,959)
			
			(422,959)Issuances (repurchases) ofcommon stock, net
			(1,640)
			
			28,325
			
			-
			
			(72,648)
			
			(45,963)BALANCE, JUNE 30, 2008
			$1,116,211
			
			$8,679,232
			
			$       (746,537)
			
			$32,601,723
			
			$ 41,650,629BALANCE, 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 loss
			-
			
			-
			
			-
			
			(534,867)
			
			(534,867)Change in net unrealized appreciationon available-for-sale securities
			-
			
			-
			
			2,741,538
			
			-
			
			2,741,538Change in unrealized pension benefits
			-
			
			-
			
			184,533
			
			-
			
			184,533Change in fair value of hedging instrument
			-
			
			-
			
			2,420
			
			-
			
			2,420Total comprehensive income
			
			
			
			
			
			
			
			
			2,393,624Issuances (repurchases) ofcommon stock, net
			8,780
			
			(17,487)
			
			-
			
			214,160
			
			205,453BALANCE, JUNE 30, 2009
			$1,129,466
			
			$8,688,005
			
			$        113,921
			
			$30,975,240
			
			$ 40,906,632




See notes to
consolidated financial statements.



6



---



INVESTORS HERITAGE CAPITAL CORPORATION

Condensed
Consolidated Statements of Cash Flows (Unaudited)



Six
			Months Ended June 30,2009
			
			2008NET CASH PROVIDED BY OPERATING ACTIVITIES
			
			$  2,399,536
			
			$  1,688,801INVESTING ACTIVITIESSecurities available-for-sale:Purchases
			
			(29,070,692)
			
			(11,207,911)Sales and maturities
			
			26,731,786
			
			11,107,683Other investments:Cost of acquisitions
			
			(602,360)
			
			(976,672)Sales and maturities
			
			880,112
			
			1,805,053Net additions to property and equipment
			
			(58,366)
			
			(213,539)NET CASH PROVIDED BY (USED IN) INVESTING
			ACTIVITIES
			
			(2,119,520)
			
			514,614FINANCING ACTIVITIESReceipts from universal life policies
			credited topolicyholder account balances
			
			3,502,911
			
			3,705,763Return of policyholder account balances on
			universal life policies
			
			(3,923,217)
			
			(4,620,311)Payments on notes payable
			
			(1,855,561)
			
			(1,645,936)Proceeds from notes payable
			
			1,500,130
			
			1,528,985Dividends paid
			
			-
			
			(422,959)Issuances (repurchases) of common stock, net
			
			205,453
			
			(45,963)NET CASH USED IN FINANCING ACTIVITIES
			
			(570,284)
			
			(1,500,421)INCREASE (DECREASE) IN CASH AND CASH
			EQUIVALENTS
			
			(290,268)
			
			702,994Cash and cash equivalents at beginning of
			period
			
			2,819,257
			
			1,238,194CASH AND CASH EQUIVALENTS AT END OF PERIOD
			
			$  2,528,989
			
			$  1,941,188




See notes to
consolidated financial statements.



7



---



INVESTORS HERITAGE CAPITAL CORPORATION



NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

June 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 six months ended June 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 FASB Staff Position ("FSP") FAS 115-2
and FAS 124-2, "Recognition and Presentation of Other-Than-Temporary
Impairments" ("FSP FAS 115-2").  FSP FAS 115-2 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 recorded in other comprehensive income (loss).  We
elected to early adopt FSP FAS 115-2 effective January 1, 2009.  As a result of
the adoption of this standard, we recognized a cumulative effect adjustment of
$409,483 (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
FSP FAS 157-4, "Determining Fair Value When Volume and Level of Activity for the
Asset or Liability Have Significantly Decreased and Identifying Transactions
that are Not Orderly" ("FSP FAS 157-4").   Under FSP FAS 157-4, 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 FSP FAS 157-4
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
FSP FAS 107-1 and APB 28-1, "Interim Disclosures about Fair Value of Financial
Instruments" ("FSP FAS 107-1/APB 28-1").   FSP FAS 107-1/APB 28-1 requires
disclosure about fair value of financial instruments in interim and annual
financial statements.   FSP FAS 107-1/APB 28-1 was effective for periods ending
after June 15, 2009, with early adoption permitted for periods ending after
March 15, 2009.   We adopted FSP FAS 107-1/APB 28-1 effective for the second
quarter of 2009 and have included the required disclosures within this report.



In May 2008, the FASB issued
Statement of Financial Accounting Standards ("SFAS") No. 162, "The Hierarchy of
Generally Accepted Accounting Principles" ("SFAS No. 162").  SFAS No. 162
identifies the sources of accounting principles and the framework for selecting
the principles used in the preparation of financial statements.  SFAS No. 162
became effective on November 15, 2008, following the SEC's approval of the
Public Company Accounting Oversight Board amendments to AU Section 411, "The
Meaning of Present Fairly in Conformity With Generally Accepted Accounting
Principles."  The Company adopted SFAS No. 162 upon issuance, with no material
impact on the consolidated financial statements. In June 2009, the FASB issued
SFAS No. 168, "The FASB Accounting Standards Codification and the Hierarchy of
Generally Accepted Accounting Principles" ("SFAS No. 168").  SFAS No. 168
replaces SFAS No. 162 and identifies the sources of accounting principles and
the framework used when preparing interim and annual financial statements.  SFAS
No. 168 will be effective for financial statements issued for interim and annual
periods ending after September 15, 2009.  The Company will adopt SFAS No. 168 in
the third quarter of 2009.



In May 2009, the FASB issued
SFAS No. 165, "Subsequent Events" ("SFAS No. 165").  SFAS No. 165 establishes
general accounting standards for events occurring subsequent to the balance
sheet date but before the financial statements are issued.  SFAS No. 165 became
effective for interim and annual accounting periods ending after June 15,
2009.  The Company adopted SFAS No. 165 on issuance, with no material impact to
the consolidated financial statements.  See Note K -- Subsequent Events.



NOTE D -- Investments

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



Gross
			
			Gross Unrealized LossesJune 30, 2009
			Amortized
			
			Unrealized
			
			Less Than
			
			Greater Than
			
			FairCost
			
			Gains
			
			12 Months
			
			12 Months
			
			ValueFixed maturity securities:U.S. government obligations
			$   36,966,272
			
			$    1,913,832
			
			$          45,363
			
			$                  -
			
			$   38,834,741States and political subdivisions
			23,210,282
			
			888,726
			
			41,431
			
			111,050
			
			23,946,527Corporate
			144,503,313
			
			4,969,893
			
			400,573
			
			3,085,918
			
			145,986,715Foreign
			20,646,739
			
			1,692,903
			
			16,216
			
			513,074
			
			21,810,352Asset-backed securities
			7,180,078
			
			252,949
			
			57,056
			
			58,744
			
			7,317,227Mortgage-backed securities (MBS):Commercial MBS
			7,038,077
			
			-
			
			-
			
			647,517
			
			6,390,560Residential MBS
			44,537,849
			
			1,926,161
			
			-
			
			-
			
			46,464,010Total fixed maturity securities
			284,082,610
			
			11,644,464
			
			560,639
			
			4,416,303
			
			290,750,132Equity securities:U.S. agencies
			552,800
			
			-
			
			-
			
			-
			
			552,800Mutual funds
			2,055,574
			
			43,489
			
			208,942
			
			-
			
			1,890,121Nonredeemable corporate preferred
			990,000
			
			-
			
			120,940
			
			-
			
			869,060Corporate common stock
			454,226
			
			453,241
			
			-
			
			-
			
			907,467Total equity securities
			4,052,600
			
			496,730
			
			329,882
			
			-
			
			4,219,448Total
			$  288,135,210
			
			$  12,141,194
			
			$       890,521
			
			$    4,416,303
			
			$ 294,969,580Gross
			
			Gross Unrealized LossesDecember 31, 2008
			Amortized
			
			Unrealized
			
			Less Than
			
			Greater Than
			
			FairCost
			
			Gains
			
			12 Months
			
			12 Months
			
			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




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.



GrossJune 30, 2009
			
			Estimated
			
			Unrealized
			
			Number ofFair Value
			
			Loss
			
			SecuritiesFixed Maturities:Fewer than 6 months:U.S. government obligations
			
			$    2,837,236
			
			$          45,363
			
			2States and political subdivisions
			
			2,003,560
			
			41,431
			
			1Corporate
			
			7,171,678
			
			229,888
			
			7Foreign
			
			936,970
			
			16,216
			
			17-12 months:Corporate
			
			3,194,068
			
			170,685
			
			5Asset-backed securities
			
			558,420
			
			57,056
			
			1Greater than 12 months:States and political subdivisions
			
			888,950
			
			111,050
			
			1Corporate
			
			26,594,716
			
			3,085,918
			
			30Foreign
			
			1,456,540
			
			513,074
			
			2Asset-backed securities
			
			1,004,133
			
			58,744
			
			2Commercial MBS
			
			6,390,560
			
			647,517
			
			7Total fixed maturities
			
			53,036,831
			
			4,976,942
			
			59Equities:Fewer than 6 months:Mutual funds
			
			695,556
			
			8,285
			
			17-12 months:Mutual funds
			
			873,770
			
			200,657
			
			2Nonredeemable corporate preferred
			
			869,060
			
			120,940
			
			1Total equities
			
			2,438,386
			
			329,882
			
			4Total
			
			$   55,475,217
			
			$    5,306,824
			
			63GrossDecember 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 June 30, 2009, all of the above
fixed maturity securities had a fair value to cost ratio equal to or greater
than 67% and the equity securities noted above had a fair value to cost ratio of
over 79%.   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 June 30,
2009 and December 31, 2008, the Company's fixed maturity securities were 97.2%
and 99.9% investment grade, respectively, as rated by Standard & Poor's.



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 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 guidance in FSP FAS 115-2 is applied to determine whether the
other-than-temporary impairment is credit-related or related to other factors. 
Only in the case of a credit-related impairment where management cannot assert
that it does not have the intent to sell the security, or it is not more likely
than not that it will not 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.  This bond was subsequently sold during July
2009.  The Company also impaired an ALCOA bond based on its intent to sell the
security before recovery, generating a pre-tax credit-related loss of $22,953. 
The Company experienced no other-than temporary impairments during the first
quarter of 2009.



The Company experienced certain
other-than-temporary impairments relative to Lehman Holdings bonds, Fifth Third
mutual funds, and Bank of America and JP Morgan bonds during the third and
fourth quarters of 2008.  Upon adoption of FSP FAS 115-2, a cumulative effect
adjustment (as discussed in Note C) 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 asserts 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 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.



June 30,
			
			December 31,2009
			
			2008Net unrealized appreciation onavailable-for sale securities
			$  6,834,370
			
			$  2,992,865Adjustment to deferred acquisition costs
			(323,307)
			
			(154,982)Deferred income taxes
			(2,587,521)
			
			(1,383,722)Net unrealized appreciation onavailable-for sale securities
			$  3,923,542
			
			$  1,454,161




The
amortized cost and fair value of fixed maturity securities at June 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
			$          9,574,965
			
			$          9,794,319Due after one year through five years
			94,524,139
			
			98,853,029Due after five years through ten years
			88,072,182
			
			87,329,978Due after ten years
			40,335,398
			
			41,918,236Due at multiple maturity dates
			51,575,926
			
			52,854,570Total
			$      284,082,610
			
			$      290,750,132




Proceeds for the three months
ended June 30, 2009 and 2008 from sales and maturities of investments in
available-for-sale securities were $11,654,215 and $3,077,628, respectively. 
Gross gains of $54,817 and $1,089 and gross losses of $13,169 and $0 were
realized on those sales during the three month periods ended June 30, 2009 and
2008, respectively.  Proceeds for the six months ended June 30, 2009 and 2008
from sales and maturities of investments in available-for-sale securities were
$26,731,786 and $11,107,683, respectively.  Gross gains of $126,352 and $1,458
and gross losses of $15,098 and $1,839 were realized on those sales during the
six month periods ended June 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 six months ended
June 30, 2009 and 2008.



Quarter Ended June 30,
			
			Six
			Months Ended June 30,2009
			
			2008
			
			2009
			
			2008Change in unrealized investmentgains (losses):Available-for-sale:Fixed maturities
			$   6,702,543
			
			$  (6,656,196)
			
			$   3,572,772
			
			$  (3,963,409)Equity securities
			614,011
			
			(257,330)
			
			268,733
			
			(494,487)Realized investment gains (losses):Available-for-sale:Fixed maturities
			$    (936,182)
			
			$          1,089
			
			$    (866,576)
			
			$            (382)Equity securities
			-
			
			-
			
			-
			
			-




Major categories of net
investment income are summarized as follows:



Quarter Ended June 30,
			
			Six
			Months Ended June 30,2009
			
			2008
			
			2009
			
			2008Fixed maturities
			$    3,960,649
			
			$    3,998,264
			
			$    8,011,480
			
			$    8,003,447Mortgage loans on real estate
			405,170
			
			493,564
			
			809,980
			
			935,052Other
			201,623
			
			230,715
			
			401,990
			
			434,1944,567,442
			
			4,722,543
			
			9,223,450
			
			9,372,693Investment expenses
			224,059
			
			209,727
			
			439,906
			
			419,438$    4,343,383
			
			$    4,512,816
			
			$    8,783,544
			
			$    8,953,255




NOTE E -- Fair Values of Financial Instruments

SFAS No. 157, "Fair Value
Measurements" ("SFAS No. 157") defines fair value, establishes a framework for
measuring fair value and enhances disclosures about fair value measurements. 
Fair value is defined under SFAS No. 157 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 of a significant decrease in volume and level of activity for an asset or
liability when compared with normal activity in accordance with FSP FAS 157-4.



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 established in SFAS No. 157 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.



In accordance with SFAS No. 157, 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.



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



June 30, 2009Level 1
			
			Level 2
			
			Level 3
			
			TotalFixed maturities:U.S. government obligations
			$                     -
			
			$   37,835,041
			
			$        999,700
			
			$    38,834,741States and political subdivisions
			-
			
			23,946,527
			
			-
			
			23,946,527Corporate
			-
			
			139,795,118
			
			6,191,597
			
			145,986,715Foreign
			-
			
			21,810,352
			
			-
			
			21,810,352Asset-backed securities
			-
			
			5,702,267
			
			1,614,960
			
			7,317,227Mortgage-backed securities:Commercial MBS
			-
			
			6,390,560
			
			-
			
			6,390,560Residential MBS
			-
			
			46,464,010
			
			-
			
			46,464,010Total fixed maturities
			$                     -
			
			$ 281,943,875
			
			$     8,806,257
			
			$ 290,750,132Equity securities:U.S. agencies
			$         552,800
			
			$                    -
			
			$                    -
			
			$        552,800Mutual funds
			1,890,121
			
			-
			
			-
			
			1,890,121Nonredeemable corporate preferred
			869,060
			
			-
			
			-
			
			869,060Corporate common stock
			565,067
			
			-
			
			342,400
			
			907,467Total equity securities
			$      3,877,048
			
			$                    -
			
			$        342,400
			
			$     4,219,448December 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 June 30, 2009, Level 3 financial
instruments consisted of six 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.  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.



The following table provides a summary of changes in fair
value of our Level 3 financial instruments for the three and six month periods
ended June 30, 2009 and 2008, respectively.



Quarter Ended June 30, 2009April 1,
			
			Realized
			
			Unrealized2009
			
			Gains
			
			Gains
			
			Purchases
			
			Transfers
			
			EndingBalance
			
			(Losses)
			
			(Losses)
			
			(Sales)
			
			In
			(Out)
			
			BalanceFixed maturities:U.S. Government obligations
			$   1,929,473
			
			$                 -
			
			$      (22,489)
			
			$      705,486
			
			$ (1,612,770)
			
			$     999,700Corporate
			5,231,724
			
			-
			
			184,658
			
			775,215
			
			-
			
			6,191,597Asset-backed securities
			1,629,271
			
			-
			
			21,100
			
			(35,411)
			
			-
			
			1,614,960Total fixed maturities
			$   8,790,468
			
			-
			
			$     183,269
			
			$   1,445,290
			
			$ (1,612,770)
			
			$  8,806,257Equity securities:Corporate common stock
			$      342,400
			
			$                 -
			
			$                 -
			
			$                 -
			
			$                 -
			
			$     342,400Total equity securities
			$      342,400
			
			$                 -
			
			$                 -
			
			$                 -
			
			$                 -
			
			$     342,400Quarter Ended June 30, 2008April 1,
			
			Realized
			
			Unrealized2008
			
			Gains
			
			Gains
			
			Purchases
			
			Transfers
			
			EndingBalance
			
			(Losses)
			
			(Losses)
			
			(Sales)
			
			In
			(Out)
			
			BalanceFixed maturities
			$   6,822,872
			
			$                 -
			
			$    (155,779)
			
			$                 -
			
			$      995,171
			
			$  7,662,264Equity securities
			320,000
			
			-
			
			-
			
			-
			
			-
			
			320,000Six
			Months Ended June 30, 2009January 1,
			
			Realized
			
			Unrealized2009
			
			Gains
			
			Gains
			
			Purchases
			
			Transfers
			
			EndingBalance
			
			(Losses)
			
			(Losses)
			
			(Sales)
			
			In
			(Out)
			
			BalanceFixed maturities:U.S. Government obligations
			$   2,037,998
			
			$                 -
			
			$      (17,933)
			
			$      592,405
			
			$ (1,612,770)
			
			$     999,700Corporate
			4,588,512
			
			-
			
			(42,771)
			
			1,645,856
			
			-
			
			6,191,597Asset-backed securities
			1,599,571
			
			-
			
			85,462
			
			(70,073)
			
			-
			
			1,614,960Total fixed maturities
			$   8,226,081
			
			$                 -
			
			$       24,758
			
			$   2,168,188
			
			$ (1,612,770)
			
			$  8,806,257Equity securities:Corporate common stock
			$      342,400
			
			$                 -
			
			$                -
			
			$                 -
			
			$                 -
			
			$     342,400Total equity securities
			$      342,400
			
			$                 -
			
			$                -
			
			$                 -
			
			$                 -
			
			$     342,400Six
			Months Ended June 30, 2008January 1,
			
			Realized
			
			Unrealized2008
			
			Gains
			
			Gains
			
			Purchases
			
			Transfers
			
			EndingBalance
			
			(Losses)
			
			(Losses)
			
			(Sales)
			
			In
			(Out)
			
			BalanceFixed maturities
			$   6,940,640
			
			$                 -
			
			$   (273,547)
			
			$                 -
			
			$     995,171
			
			$  7,662,264Equity 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.



The following disclosure of the
estimated fair values of financial instruments, as of June 30, 2009 and December
31, 2008, is made in accordance with the requirements of FSP FAS 107-1 and APB
28-1.  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.



June 30, 2009
			
			December 31, 2008Carrying
			
			Fair
			
			Carrying
			
			FairAmount
			
			Value
			
			Amount
			
			ValueAssets:Fixed maturities
			$   290,750,132
			
			$   290,750,132
			
			$   285,430,376
			
			$   285,430,376Equity securities
			4,219,448
			
			4,219,448
			
			3,938,177
			
			3,938,177Mortgage loans on
			real estate:Commercial
			22,318,002
			
			22,429,421
			
			22,480,039
			
			23,517,378Residential
			30,690
			
			32,772
			
			32,399
			
			35,509Policy loans
			6,977,474
			
			6,977,474
			
			6,971,949
			
			6,971,949Other long-term
			investments
			927,209
			
			927,209
			
			1,021,741
			
			1,021,741Short-term
			investments
			-
			
			-
			
			25,000
			
			25,000Cash and cash
			equivalents
			2,528,989
			
			2,528,989
			
			2,819,257
			
			2,819,257Accrued
			investment income
			4,258,007
			
			4,258,007
			
			4,338,974
			
			4,338,974Cash value of
			company-ownedlife insurance
			7,904,794
			
			7,904,794
			
			7,764,223
			
			7,764,223Liabilities:Policyholder
			deposits(Investment-type contracts)
			$     51,368,911
			
			$     50,343,633
			
			$     51,491,954
			
			$     48,926,107Policy claims
			1,514,995
			
			1,514,995
			
			1,504,744
			
			1,504,744Obligations under
			capital leases
			209,692
			
			209,692
			
			284,307
			
			284,307Notes payable
			3,346,075
			
			3,099,934
			
			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 required by SFAS No. 157, as
previously discussed.



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:  In
accordance with SFAS No. 157, 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.



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.



The fair values for insurance contracts
other than investment-type contracts are not required to be disclosed under SFAS
No. 107.



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 June 30, 2009 and 2008 were 1,125,932 and 1,114,343,
respectively.  The weighted average number of shares outstanding for the six
months ended June 30, 2009 and 2008 were 1,123,324 and 1,114,725, respectively.



The Company's only outstanding stock
options and stock appreciation rights were issued in 1999. We account for our
stock-based incentive program under SFAS No. 123(R), "Share-Based Payment,"
which requires all share-based payments to employees to be recognized as
compensation expense in the consolidated income statement. We adopted the
provisions of SFAS No. 123(R) using the modified prospective method in which
compensation expense is recognized based on the requirements of SFAS No. 123,
"Accounting for Stock-Based Compensation," for all awards granted to employees
prior to January 1, 2006. 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.



Under our stock option and stock
appreciation rights plan, there were 61,125 outstanding options, having an
exercise price of $23.00 per share, as of June 30, 2009 and 2008. We recognized
no change in compensation expense relative to the outstanding options for the
three month period ended June 30, 2009 compared to a decrease in compensation
expense relative to the outstanding options of $253,669 for the three month
period ended June 30, 2008.  We recognized a decrease in compensation expense
relative to the outstanding options of $213,938 for the six month period ended
June 30, 2009 compared to a decrease in compensation expense of $207,825
associated with such options for the six month period ended June 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.



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 June 30,
			
			Six
			Months Ended June 30,2009
			
			2008
			
			2009
			
			2008Revenue:Preneed and burial products
			$     9,904,070
			
			$     9,775,797
			
			$   19,638,775
			
			$   19,350,256Traditional and universal life products
			2,533,125
			
			2,848,834
			
			5,011,840
			
			5,593,257Credit insurance products andadministrative services
			92,927
			
			110,332
			
			177,096
			
			203,140Corporate and other
			(609,049)
			
			270,051
			
			(277,805)
			
			608,464$   11,921,073
			
			$   13,005,014
			
			$   24,549,906
			
			$   25,755,117Pre-tax income (loss) from operations:Preneed and burial products
			$          28,102
			
			$      (211,397)
			
			$      (248,084)
			
			$      (538,679)Traditional and universal life products
			138,308
			
			96,966
			
			33,418
			
			160,050Credit insurance products andadministrative services
			59,771
			
			73,795
			
			105,935
			
			144,470Corporate and other
			(926,454)
			
			291,122
			
			(626,380)
			
			511,123$      (700,273)
			
			$       250,486
			
			$      (735,111)
			
			$       276,964




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 2005 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.



NOTE I -- Comprehensive Income (Loss)

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



Quarter Ended June 30,
			
			Six
			Months Ended June 30,2009
			
			2008
			
			2009
			
			2008Total net unrealized gains (losses)arising during the period
			$  3,667,623
			
			$ (4,834,495)
			
			$  1,874,962
			
			$ (2,734,097)Less: Net realized investment gains (losses)
			(936,182)
			
			1,089
			
			(866,576)
			
			(382)Net unrealized gains (losses)
			4,603,805
			
			(4,835,584)
			
			2,741,538
			
			(2,733,715)Change in unrealized pension benefits
			92,266
			
			61,218
			
			184,533
			
			81,445Change in fair value of hedging instrument
			1,237
			
			3,078
			
			2,420
			
			3,495Net income (loss)
			(508,298)
			
			191,032
			
			(534,867)
			
			211,226Total comprehensive income (loss)
			$  4,189,010
			
			$ (4,580,256)
			
			$  2,393,624
			
			$ (2,437,549)




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 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 June 30,
			
			Six
			Months Ended June 30,2009
			
			2008
			
			2009
			
			2008Service cost
			$       94,516
			
			$       96,426
			
			$     189,032
			
			$     185,456Interest cost
			235,173
			
			235,277
			
			470,347
			
			436,108Expected return on plan assets
			(170,572)
			
			(227,682)
			
			(341,144)
			
			(458,936)Recognized net loss
			139,798
			
			92,753
			
			279,596
			
			123,402Net periodic benefit cost
			$     298,915
			
			$     196,774
			
			$     597,831
			
			$     286,030




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 June 30, 2009, $486,000 had been
contributed. We presently anticipate contributing an additional $486,000 to fund
our pension plan in 2009.



NOTE K -- Subsequent Events

Upon their maturity at June 30, 2009, the
Company and its current provider mutually decided not to renew the At Need
Funding line of credit and operating line of credit.  The amount outstanding on
the At Need Funding line of credit of $600,117 was repaid in full subsequent to
June 30, 2009.  No amounts were outstanding on the operating line of credit.  We
are currently reviewing offers from other providers to obtain similar lines.  We
do not expect any significant impact resulting from this interruption in the
availability of the line of credit given that Investors Heritage Life can
support At Need Funding borrowing needs in the short-term.



Subsequent events or transactions have
been evaluated for potential recognition or disclosure through August 14, 2009,
which is the date that the financial statements have been issued.



---



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 five 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.



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 utilize the provisions of SFAS 115 and FSP FAS 115-2 in
determining the proper treatment for the other-than-temporary impairment.  Our
adoption of FSP FAS 115-2 during the first quarter of 2009 amends the
determination of other-than-temporary impairments for fixed maturities (see Note
C to our condensed consolidated financial statements), but not for equity
securities.  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 recorded in other
comprehensive 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.



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.



New Accounting Pronouncements

In April 2009, the FASB issued
FSP FAS 115-2 and FAS 124-2, "Recognition and Presentation of
Other-Than-Temporary Impairments" ("FSP FAS 115-2").  FSP FAS 115-2 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 recorded in other
comprehensive income (loss).  We elected to early adopt FSP FAS 115-2 effective
January 1, 2009.  As a result of the adoption of this standard, we recognized a
cumulative effect adjustment of $409,483 (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
FSP FAS 157-4, "Determining Fair Value When Volume and Level of Activity for the
Asset or Liability Have Significantly Decreased and Identifying Transactions
that are Not Orderly" ("FSP FAS 157-4").   Under FSP FAS 157-4, 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 FSP FAS 157-4
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
FSP FAS 107-1 and APB 28-1, "Interim Disclosures about Fair Value of Financial
Instruments" ("FSP FAS 107-1/APB 28-1").   FSP FAS 107-1/APB 28-1 requires
disclosure about fair value of financial instruments in interim and annual
financial statements.   FSP FAS 107-1/APB 28-1 was effective for periods ending
after June 15, 2009, with early adoption permitted for periods ending after
March 15, 2009.   We adopted FSP FAS 107-1/APB 28-1 effective for the second
quarter of 2009 and have included the required disclosures within our footnotes.



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 2008, the FASB issued
SFAS No. 162, "The Hierarchy of Generally Accepted Accounting Principles" ("SFAS
No. 162").  SFAS No. 162 identifies the sources of accounting principles and the
framework for selecting the principles used in the preparation of financial
statements.  SFAS No. 162 became effective on November 15, 2008, following the
SEC's approval of the Public Company Accounting Oversight Board amendments to AU
Section 411, "The Meaning of Present Fairly in Conformity With Generally
Accepted Accounting Principles."  The Company adopted SFAS No. 162 upon
issuance, with no material impact on the consolidated financial statements. In
June 2009, the FASB issued SFAS No. 168, "The FASB Accounting Standards
Codification and the Hierarchy of Generally Accepted Accounting Principles" ("SFAS
No. 168").  SFAS No. 168 replaces SFAS No. 162 and identifies the sources of
accounting principles and the framework used when preparing interim and annual
financial statements.  SFAS No. 168 will be effective for financial statements
issued for interim and annual periods ending after September 15, 2009.  The
Company will adopt SFAS No. 168 in the third quarter of 2009.



In May 2009, the FASB issued
SFAS No. 165, "Subsequent Events" ("SFAS No. 165").  SFAS No. 165 establishes
general accounting standards for events occurring subsequent to the balance
sheet date but before the financial statements are issued.  SFAS No. 165 became
effective for interim and annual accounting periods ending after June 15,
2009.  The Company adopted SFAS No. 165 on issuance, with no material impact to
the consolidated financial statements.  Refer to Note K to our condensed
consolidated financial statement for disclosures relative to subsequent events.





INVESTMENTS, LIQUIDITY AND CAPITAL RESOURCES



Investments

Investors Heritage Life maintains a
sound, conservative investment strategy. At June 30, 2009, 89.4% of invested
assets consisted of fixed income securities compared to 89.2% at December 31,
2008. At June 30, 2009 and December 31, 2008, Investors Heritage Life's fixed
income investments were 97.2% and 99.9% investment grade, respectively, as rated
by Standard & Poor's.



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.  This bond was subsequently sold during July
2009.  The Company also impaired an ALCOA bond based on its intent to sell the
security before recovery, generating a pre-tax credit-related loss of $22,953. 
The Company experienced no other-than temporary impairments during the first
quarter of 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 do not intend 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 June 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 June 30, 2009, we have only
one CMO, with a fair value of approximately $45,000, 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 June 30, 2009,
6.9% 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 June 30,
2009, Investors Heritage Life had no non-performing mortgage loans, which would
include loans past due 180 days or more, loans in process of foreclosure,
restructured loans and real estate acquired through foreclosure.



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 June 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.



Upon their maturity at June 30, 2009, the
Company and its current provider mutually decided not to renew the At Need
Funding line of credit and operating line of credit.  The amount outstanding on
the At Need Funding line of credit of $600,117 was repaid in full subsequent to
June 30, 2009.  No amounts were outstanding on the operating line of credit.  We
are currently reviewing offers from other providers to obtain similar lines.  We
do not expect any significant impact resulting from this interruption in the
availability of the line of credit given that Investors Heritage Life can
support At Need Funding borrowing needs in the short-term.



RESULTS OF OPERATIONS



Overview

Premiums earned (net of reinsurance) were
$8,221,179 for the second quarter of 2009 (an increase of 0.1% compared to the
second quarter of 2008) and $16,123,480 for the six months ended June 30, 2009
(a decrease of 0.8% compared to the corresponding period in 2008).  The current
poor economic conditions continue to limit disposable income typically used for
new sales in many of our markets.



Net investment income was $4,343,383 for
the second quarter of 2009 (a decrease of 3.8% compared to the second quarter of
2008) and $8,783,544 for the six months ended June 30, 2009 (a decrease of 1.9%
compared to the corresponding period in 2008).  The fluctuating economic
environment continues to put pressure on new investment yields.



Net realized losses were $936,182 and
$866,576 for the three and six month periods ended June 30, 2009.  These losses
were primarily driven by the other-than-temporary impairment charge taken on our
CIT Group Holdings bond, as previously discussed.



Total revenue was $11,921,073 for the
second quarter of 2009 (a decrease of 8.3% compared to the second quarter of
2008) and $24,549,906 for the six months ended June 30, 2009 (a decrease of 4.7%
compared to the corresponding period in 2008).



Total benefits and expenses were
$12,621,346 in the second quarter of 2009 (a decrease of 1.0% compared to the
second quarter of 2008) and $25,285,017 for the six months ended June 30, 2009
(a decrease of 0.8% compared to the corresponding period in 2008).  This
decrease correlates with 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 loss was $508,298 with a loss per share of $0.45 for the second quarter
of 2009 as compared to net income of $191,032 and earnings per share of $0.17
for the second quarter of 2008.  Our net loss for the six months ended June 30,
2009 was $534,867 with a loss per share of $0.48 compared with net income of
$211,226 and earnings per share of $0.19 for the six months ended June 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 $9,904,070 for the second
quarter of 2009 (an increase of 1.3% compared to the second quarter of 2008) and
$19,638,775 for the six months ended June 30, 2009 (an increase of 1.5% compared
to the corresponding period in 2008).  This increase is due primarily to
increased preneed sales from the Legacy Gold preneed product series.  Pre-tax
income (loss) from operations was $28,102 and ($248,084) for the three and six
month periods ended June 30, 2009 compared to a pre-tax loss from operations of
($211,397) and ($538,679) for the three and six month periods ended June 30,
2008.  This improvement was driven by the corresponding increase in sales
revenue and the allowable reduction of certain death benefit crediting rates.



Traditional and Universal Life Products
include traditional life and group life insurance products, certain annuities
and universal life products. Revenues for this segment were $2,533,125 for the
second quarter of 2009 (a decrease of 11.1% compared to the second quarter of
2008) and $5,011,840 for the six months ended June 30, 2009 (a decrease of 10.4%
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 $138,308 and $33,418 for the three and six month periods ended
June 30, 2009 compared to pre-tax income of $96,966 and $160,050 for the three
and six month periods ended June 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 $92,927 for the second
quarter of 2009 (a decrease of 15.8% compared to the second quarter of 2008) and
$177,096 for the six months ended June 30, 2009 (a decrease of 12.8% compared to
the corresponding period in 2008).  Pre-tax income from operations was $59,771
and $105,935 for the three and six month periods ended June 30, 2009 compared to
$73,795 and $144,470 for the three and six month periods ended June 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 losses, for this segment were ($609,049) and ($277,805)
for the three and six month periods ended June 30, 2009.  Likewise, the pre-tax
loss from operations was ($926,454) and ($626,380) for the three and six month
periods ended June 30, 2009. The current period losses were driven primarily by
the other-than-temporary impairments taken during the second quarter of 2009, 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 six month period ended June 30, 2009 was derived
from the sale of Investors Heritage Life's credit insurance products. During the
first six months of 2009, Investors Heritage Capital received dividends from
Investors Heritage Financial totaling $68,000 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 27.4% and 27.2% for the three and six month periods ended June 30,
2009, respectively, compared to 23.7% for both the three and six month periods
ended June 30, 2008.



OFF-BALANCE SHEET ARRANGEMENTS



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



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 August 14, 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



(a)   The
annual meeting of the stockholders was held May 14, 2009 at 11:00 a.m. for the
following purposes:



(1)  An Amendment to the Company's Articles of
Incorporation was approved to change the Company's name to Investors Heritage
Capital Corporation.



The following number of votes cast was as
follows:



FOR
			925,948.158AGAINST
			2,421.320ABSTAIN
			3,136.960




(2)   Three
(3) directors were elected to hold office for a term of three (3) years or until
their successors are duly elected and qualified.



The following individuals were elected for a
term of three (3) years and the number of votes cast was as follows:



Howard L. Graham -- Number of Votes Cast FOR --
929,894.408; WITHHELD -- 1,612.03



Robert M. Hardy, Jr. -- Number of Votes Cast FOR
-- 927,211.688; WITHHELD -- 4,294.75



Dr. Jerry F. Howell, Jr. -- Number of Votes Cast
FOR -- 929,724.048; WITHHELD -- 1,782.39



The other directors whose terms will continue
after the meeting are:



|Gordon C. Duke            | Harold F. Doran,
		Jr.
|------------------------- | ----------------------
|Harry Lee
		Waterfield II | Helen S. Wagner       
|Michael F.
		Dudgeon, Jr. | David W. Reed         





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: August 14, 2009
			PresidentBY: /s/Raymond L. CarrRaymond L. CarrDATE: August 14, 2009
			Vice President - Chief Financial Officer




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