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 March 31, 2010








000-01999

(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 May 5, 2010 - 1,143,820.276



---





CONTENTS





PART I -- FINANCIAL INFORMATIONPageITEM 1.
			Condensed Consolidated Financial Statements
			4ITEM 2.
			Management's Discussion and Analysis of
			Financial Condition and Results of Operations
			18ITEM 4T.
			Controls and Procedures
			25PART II -- OTHER INFORMATIONITEM 1.
			Legal
			Proceedings
			26ITEM 2.
			Unregistered Sales of Equity Securities and Use of Proceeds
			26ITEM 3.
			Defaults
			Upon Senior Securities
			26ITEM 4.
			(Removed
			and Reserved)
			26ITEM 5.
			Other
			Information
			26ITEM 6.
			Exhibits
			26SIGNATURES
			
			27EXHIBIT 31.1
			
			28EXHIBIT 31.2
			
			30EXHIBIT 32
			
			32




3



---





PART I -- FINANCIAL INFORMATION




ITEM
1. Condensed Consolidated Financial Statements



INVESTORS HERITAGE CAPITAL CORPORATION

Condensed Consolidated Balance Sheets (Unaudited)





March 31,
			
			December 31,ASSETS
			
			2010
			
			2009Investments:Securities available-for-sale, at fair
			value:Fixed maturities (amortized cost:
			$285,718,423 and $282,864,572)
			
			$  301,470,082
			
			$  295,242,583Equity securities (cost: $4,068,673 and
			$4,063,905)
			
			4,360,964
			
			4,223,604Mortgage loans on real estate
			
			20,811,421
			
			20,692,866Policy loans
			
			6,847,257
			
			6,923,418Other long-term investments
			
			956,820
			
			1,026,604Total investments
			
			334,446,544
			
			328,109,075Cash and cash equivalents
			
			3,385,796
			
			5,730,782Accrued investment income
			
			3,482,613
			
			4,013,402Due premiums
			
			3,493,585
			
			3,613,278Deferred acquisition costs
			
			18,389,983
			
			18,703,379Present value of future profits
			
			8,645
			
			12,968Leased property under capital leases
			
			169,506
			
			143,653Property and equipment
			
			1,722,100
			
			1,746,849Cash value of company-owned life insurance
			
			8,746,559
			
			8,671,833Other assets
			
			365,767
			
			312,852Amounts recoverable from reinsurers
			
			46,429,964
			
			47,521,019$  420,641,062
			
			$  418,579,090LIABILITIES AND STOCKHOLDERS' EQUITYLIABILITIESPolicy liabilities:Benefit reserves
			
			$  343,580,369
			
			$  343,935,852Unearned premium reserves
			
			10,075,934
			
			10,543,520Policy claims
			
			1,582,809
			
			1,582,684Liability for deposit-type contracts
			
			2,729,984
			
			2,742,986Reserves for dividends and endowments and
			other
			
			457,963
			
			425,419Total policy liabilities
			
			358,427,059
			
			359,230,461Deferred federal income tax liability
			
			5,297,050
			
			4,285,842Obligations under capital leases
			
			171,344
			
			147,644Notes payable
			
			2,804,211
			
			3,070,584Accrued pension liability
			
			4,151,579
			
			4,304,257Other liabilities
			
			2,307,764
			
			1,865,423Total liabilities
			
			373,159,007
			
			372,904,211STOCKHOLDERS' EQUITYCommon stock (shares issued:  1,143,820 and
			1,141,767)
			
			1,143,820
			
			1,141,767Paid-in surplus
			
			8,706,804
			
			8,716,135Accumulated other comprehensive income
			(loss)
			
			6,812,097
			
			4,495,103Retained earnings
			
			30,819,334
			
			31,321,874Total stockholders' equity
			
			47,482,055
			
			45,674,879$  420,641,062
			
			$  418,579,090




See notes to condensed consolidated financial statements.



4



---





INVESTORS
HERITAGE CAPITAL CORPORATION

Condensed
Consolidated Income Statements (Unaudited)



Quarter Ended March 31,2010
			
			2009REVENUEPremiums and other considerations
			$     9,278,184
			
			$     9,913,269Premiums ceded
			(1,369,412)
			
			(2,010,968)Net premiums earned
			7,908,772
			
			7,902,301Investment income, net of expenses
			4,263,570
			
			4,440,161Net realized investment gains (losses) on
			investments:Total other-than-temporary impairment
			losses
			-
			
			-Portion of loss recognized in other
			comprehensive income
			-
			
			-Other net realized investment gains
			72,811
			
			69,606Net realized investment gains on investments:
			72,811
			
			69,606Other income
			313,550
			
			216,765Total revenue
			12,558,703
			
			12,628,833BENEFITS AND EXPENSESDeath and other benefits
			8,503,713
			
			8,723,019Guaranteed annual endowments
			126,239
			
			132,423Dividends to policyholders
			117,733
			
			116,937Increase in benefit reserves and unearned
			premiums
			729,085
			
			440,359Acquisition costs deferred
			(1,112,037)
			
			(1,215,434)Amortization of deferred acquisition costs
			1,283,927
			
			1,225,311Commissions
			586,868
			
			515,139Other insurance expenses
			2,864,880
			
			2,771,707Total benefits and expenses
			13,100,408
			
			12,709,461LOSS BEFORE FEDERAL INCOME TAXES
			(541,705)
			
			(80,628)PROVISION (BENEFIT) FOR FEDERAL INCOME TAXESCurrent
			(10,812)
			
			184,341Deferred
			(136,749)
			
			(203,462)(147,561)
			
			(19,121)NET LOSS
			$      (394,144)
			
			$         (61,507)BASIC AND DILUTED NET LOSS PER SHARE
			$            (0.35)
			
			$             (0.05)DIVIDENDS PER SHARE
			$              0.13
			
			$                    -




See
notes to condensed 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, 2009
			$1,120,686
			
			$8,705,492
			
			$  (2,542,413)
			
			$30,169,195
			
			$37,452,960Cumulative effect of a change inaccounting principle
			-
			
			-
			
			(272,157)
			
			272,157
			
			-Comprehensive loss:Net loss
			-
			
			-
			
			-
			
			(61,507)
			
			(61,507)Change in net unrealized depreciationon available-for-sale securities
			-
			
			-
			
			(1,862,267)
			
			-
			
			(1,862,267)Change in unrealized pension benefits
			-
			
			-
			
			92,267
			
			-
			
			92,267Change in fair value of hedging instrument
			-
			
			-
			
			1,183
			
			-
			
			1,183Total comprehensive loss
			
			
			
			
			
			
			
			
			(1,830,324)BALANCE, MARCH 31, 2009
			$1,120,686
			
			$8,705,492
			
			$  (4,583,387)
			
			$30,379,845
			
			$35,622,636BALANCE, JANUARY 1, 2010
			$1,141,767
			
			$8,716,135
			
			$   4,495,103
			
			$31,321,874
			
			$45,674,879Comprehensive income:Net loss
			-
			
			-
			
			-
			
			(394,144)
			
			(394,144)Change in net unrealized appreciationon available-for-sale securities
			-
			
			-
			
			2,250,050
			
			-
			
			2,250,050Change in unrealized pension benefits
			-
			
			-
			
			64,586
			
			-
			
			64,586Change in fair value of hedging instrument
			-
			
			-
			
			2,358
			
			-
			
			2,358Total comprehensive income
			
			
			
			
			
			
			
			
			1,922,850Cash dividends
			-
			
			-
			
			-
			
			(160,821)
			
			(160,821)Issuances of common stock, net
			2,053
			
			(9,331)
			
			-
			
			52,425
			
			45,147BALANCE, MARCH 31, 2010
			$1,143,820
			
			$8,706,804
			
			$   6,812,097
			
			$30,819,334
			
			$47,482,055




See notes to condensed consolidated financial statements.



6





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INVESTORS HERITAGE CAPITAL CORPORATION

Condensed Consolidated Statements of Cash Flows (Unaudited)



Three Months Ended March 31,2010
			
			
			2009NET CASH PROVIDED BY OPERATING ACTIVITIES
			
			$     1,517,247
			
			
			$       945,138INVESTING ACTIVITIESSecurities available-for-sale:Purchases
			
			(11,352,867)
			
			
			(16,207,686)Sales and maturities
			
			8,493,520
			
			
			15,077,571Other investments:Cost of acquisitions
			
			(972,529)
			
			
			(574,516)Sales and maturities
			
			999,919
			
			
			459,481Net additions to property and equipment
			
			(90,970)
			
			
			(7,989)NET CASH USED IN INVESTING ACTIVITIES
			
			(2,922,927)
			
			
			(1,253,139)FINANCING ACTIVITIESReceipts from universal life policies
			credited topolicyholder account balances
			
			1,495,480
			
			
			1,728,823Return of policyholder account balances on
			universal life policies
			
			(2,213,560)
			
			
			(2,494,632)Payments on notes payable
			
			(942,345)
			
			
			(878,029)Proceeds from notes payable
			
			675,972
			
			
			888,311Issuances of common stock, net
			
			45,147
			
			
			-NET CASH USED IN FINANCING ACTIVITIES
			
			(939,306)
			
			
			(755,527)DECREASE IN CASH AND CASH EQUIVALENTS
			
			(2,344,986)
			
			
			(1,063,528)Cash and cash equivalents at beginning of
			period
			
			5,730,782
			
			
			2,819,257CASH AND CASH EQUIVALENTS AT END OF PERIOD
			
			$     3,385,796
			
			
			$     1,755,729




See notes to
condensed consolidated financial statements.



7



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INVESTORS HERITAGE CAPITAL CORPORATION



NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

March 31, 2010

(Unaudited)



NOTE A - Nature of Operations

Investors Heritage Capital Corporation 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 quarter ended March 31, 2010 are not necessarily indicative of
the results that may be expected for the year ending December 31, 2010. For
further information, refer to the consolidated financial statements and
footnotes thereto for the year ended December 31, 2009, 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.



Management has evaluated all events subsequent to March
31, 2010 through the date that these financial statements have been issued.



NOTE C - New Accounting Pronouncements

In
January 2010, the Financial Accounting Standards Board issued Accounting
Standards Update No. 2010-06, Improving Disclosures about Fair Value
Measurements ("ASU 2010-06").  The new guidance requires entities to
separately disclose information relative to transfers in and out of Levels 1 and
2 in the fair value hierarchy.  Additionally, ASU 2010-06 requires separate
presentation of transfers in, transfers out, purchases, sales, issuances and
settlements of Level 3 investments in the tabular reconciliation of Level 3
activity.  ASU 2010-06 also clarifies the level of disaggregation for which fair
value measurements should be disclosed and requires that information about input
and valuation techniques be disclosed for Level 2 and Level 3 assets and
liabilities.  The new disclosures and clarifications of existing disclosures are
effective for interim and annual reporting periods beginning after December 15,
2009, except for the disclosures about purchases, sales, issuances, and
settlements in the rollforward of activity



8



---





in Level
3 fair value measurements. Those disclosures are effective for fiscal years
beginning after December 15, 2010, and for interim periods within those fiscal
years.  We adopted this guidance effective for the first quarter of 2010.



NOTE D - Investments

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



March 31, 2010
			Amortized
			Cost
			
			Gross
			Unrealized
			Gains
			
			Gross
			Unrealized
			Losses
			
			Fair
			ValueFixed maturity securities:U.S. government obligations
			$  40,835,170
			
			$  1,740,386
			
			$      77,318
			
			$  42,498,238States and political subdivisions
			31,591,721
			
			987,851
			
			70,973
			
			32,508,599Corporate
			136,752,626
			
			8,913,252
			
			379,569
			
			145,286,309Foreign
			20,400,388
			
			1,840,853
			
			229,031
			
			22,012,210Asset-backed securities
			6,024,206
			
			460,929
			
			99,165
			
			6,385,970Mortgage-backed securities (MBS):Commercial MBS
			7,030,473
			
			172,169
			
			-
			
			7,202,642Residential MBS
			43,083,839
			
			2,497,742
			
			5,467
			
			45,576,114Total fixed maturity securities
			285,718,423
			
			16,613,182
			
			861,523
			
			301,470,082Equity securities:U.S. agencies
			552,800
			
			-
			
			-
			
			552,800Mutual funds
			2,071,647
			
			320,780
			
			26,600
			
			2,365,827Nonredeemable corporate preferred
			990,000
			
			-
			
			84,060
			
			905,940Corporate common stock
			454,226
			
			226,533
			
			144,362
			
			536,397Total equity securities
			4,068,673
			
			547,313
			
			255,022
			
			4,360,964Total
			$ 289,787,096
			
			$ 17,160,495
			
			$  1,116,545
			
			$ 305,831,046December 31, 2009
			Amortized
			Cost
			
			Gross
			Unrealized
			Gains
			
			Gross
			Unrealized
			Losses
			
			Fair
			ValueFixed maturity securities:U.S. government obligations
			$  41,307,066
			
			$  1,462,195
			
			$     162,272
			
			$  42,606,989States and political subdivisions
			28,801,843
			
			648,736
			
			248,612
			
			29,201,967Corporate
			133,614,471
			
			7,542,864
			
			670,350
			
			140,486,985Foreign
			20,423,453
			
			1,678,736
			
			308,899
			
			21,793,290Asset-backed securities
			6,243,205
			
			370,862
			
			112,098
			
			6,501,969Mortgage-backed securities (MBS):Commercial MBS
			7,032,973
			
			49,376
			
			116,868
			
			6,965,481Residential MBS
			45,441,561
			
			2,255,003
			
			10,662
			
			47,685,902Total fixed maturity securities
			282,864,572
			
			14,007,772
			
			1,629,761
			
			295,242,583Equity securities:U.S. agencies
			552,800
			
			-
			
			-
			
			552,800Mutual funds
			2,066,879
			
			249,598
			
			57,202
			
			2,259,275Nonredeemable corporate preferred
			990,000
			
			-
			
			150,310
			
			839,690Corporate common stock
			454,226
			
			224,933
			
			107,320
			
			571,839Total equity securities
			4,063,905
			
			474,531
			
			314,832
			
			4,223,604Total
			$
			286,928,477
			
			$ 14,482,303
			
			$  1,944,593
			
			$ 299,466,187




9





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



March 31, 2010
			
			December 31, 2009Estimated
			Fair Value
			
			Gross
			Unrealized
			Loss
			
			Number
			of
			Securities
			
			Estimated
			Fair Value
			
			Gross
			Unrealized
			Loss
			
			Number 
			of
			SecuritiesFixed Maturities:Less than 12 months:U.S. government obligations
			
			$   2,707,487
			
			$        7,318
			
			4
			
			$    8,696,858
			
			$     162,272
			
			5States and political subdivisions
			
			5,245,469
			
			70,973
			
			5
			
			8,770,601
			
			197,072
			
			10Corporate
			
			4,949,256
			
			53,889
			
			6
			
			9,157,525
			
			123,638
			
			9Foreign
			
			2,088,640
			
			23,868
			
			1
			
			-
			
			-
			
			-Commercial MBS
			
			-
			
			-
			
			-
			
			975,464
			
			27,495
			
			1Residential MBS
			
			997,694
			
			5,467
			
			1
			
			998,540
			
			10,662
			
			1Greater than 12 months:States and political subdivisions
			
			-
			
			-
			
			-
			
			948,460
			
			51,540
			
			1Corporate
			
			8,891,760
			
			325,680
			
			10
			
			8,683,320
			
			546,712
			
			10Foreign
			
			1,766,610
			
			205,163
			
			2
			
			1,662,130
			
			308,899
			
			2Asset-backed securities
			
			468,644
			
			99,165
			
			2
			
			493,212
			
			112,098
			
			2Commercial MBS
			
			-
			
			-
			
			-
			
			2,939,812
			
			89,373
			
			3Total fixed maturities
			
			27,115,560
			
			861,523
			
			31
			
			43,325,922
			
			1,629,761
			
			44Equities:Less than 12 months:Corporate common stock
			
			192,397
			
			144,362
			
			1
			
			229,439
			
			107,320
			
			1Greater than 12 months:Nonredeemable corporate preferred
			
			905,940
			
			84,060
			
			1
			
			839,690
			
			150,310
			
			1Mutual funds
			
			1,055,223
			
			26,600
			
			2
			
			1,022,159
			
			57,202
			
			2Total equities
			
			2,153,560
			
			255,022
			
			4
			
			2,091,288
			
			314,832
			
			4Total
			
			$  29,269,120
			
			$  1,116,545
			
			35
			
			$  45,417,210
			
			$  1,944,593
			
			48




As of March 31, 2010, all of the
above fixed maturity securities individually had a fair value to cost ratio
equal to or greater than 81% and the equity securities noted above had a fair
value to cost ratio of over 57%.  As of December 31, 2009, all of the above
fixed maturity securities had a fair value to cost ratio equal to or greater
than 80% and the equity securities noted above had a fair value to cost ratio of
over 68%.  At March 31, 2010 and December 31, 2009, the Company's fixed maturity
securities were 97.7% investment grade 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 whether it is more likely than not that it may be required to
sell the security prior to its recovery in value.  For any fixed maturity
securities that are other-than-temporarily impaired, the Company determines the
portion of the other-than-temporary impairment that is credit-related and the
portion that is related to other factors. The credit-related portion is the
difference between the expected future cash flows and the amortized cost basis
of the fixed maturity security, and that difference is charged to earnings. The
non-credit-related portion representing the remaining difference to fair value
is recognized in other comprehensive income (loss). Only in the case of a
credit-related impairment where management has the intent to sell the security,
or it is more likely than not that it will be required to sell the security
before recovery of its cost basis, is a fixed maturity security adjusted to fair
value and the resulting losses recognized in realized





10



---





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 experienced no other-than-temporary impairments during the
quarters ended March 31, 2010 or 2009.



Subsequent to March 31, 2010,
the Company sold its $4,000,000 par value Lehman Holdings bonds that were
previously impaired in 2008.  This sale generated a pre-tax gain of $171,105
that will be recognized in the financial statements in the second quarter of
2010.



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.



March 31,
			2010
			
			December 31,
			2009Net unrealized appreciation onavailable-for sale securities
			$  16,043,950
			
			$  12,537,710Adjustment to deferred acquisition costs
			(680,998)
			
			(539,494)Deferred income taxes
			(5,549,402)
			
			(4,434,716)Net unrealized appreciation onavailable-for sale securities
			$  9,813,550
			
			$  7,563,500




The amortized cost and fair
value of fixed maturity securities at March 31, 2010, 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 
			Cost
			
			Fair 
			ValueDue in one year or less
			$     11,966,132
			
			$      12,454,666Due after one year through five years
			79,436,001
			
			84,959,911Due after five years through ten years
			90,682,451
			
			95,224,762Due after ten years
			53,519,527
			
			56,051,987Due at multiple maturity dates
			50,114,312
			
			52,778,756Total
			$    285,718,423
			
			$    301,470,082




Proceeds for the three months
ended March 31, 2010 and 2009 from sales and maturities of investments in
available-for-sale securities were $8,493,520 and $15,077,571, respectively. 
Gross gains of $77,410 and $71,535 and gross losses of $4,599 and $1,929 were
realized on those sales during the three month periods ended March 31, 2010 and
2009, 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 months ended March 31, 2010 and 2009.



11



---





Quarter Ended March 31,2010
			
			2009Change in unrealized investmentgains (losses):Available-for-sale:Fixed maturities
			$    3,373,648
			
			$  (3,129,771)Equity securities
			132,592
			
			(345,278)Realized investment gains:Available-for-sale:Fixed maturities
			$         72,811
			
			$         69,606Equity securities
			-
			
			-




Major categories of net
investment income are summarized as follows:



Quarter Ended March 31,2010
			
			2009Fixed maturities
			$     3,926,945
			
			$     4,050,831Mortgage loans on real estate
			377,554
			
			404,810Other
			185,872
			
			200,3674,490,371
			
			4,656,008Investment expenses
			226,801
			
			215,847$     4,263,570
			
			$     4,440,161




NOTE E - Fair Values of Financial Instruments

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



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



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



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



Level
3 - Unobservable inputs that are supported by little or no market activity
and that are significant to the fair value of the assets or liabilities. The
Company's Level 3 assets and liabilities include financial instruments whose
value is determined using pricing models, discounted cash flow methodologies, or
similar techniques, as well as instruments for which the determination of fair
value requires significant



12



---





management judgment or estimation. This category generally includes certain
private equity investments and asset-backed securities where independent pricing
inputs were not able to be obtained for a significant portion of the underlying
assets.



The Company has categorized its financial instruments,
based on the priority of the inputs to the valuation technique, into the
three-level fair value hierarchy.  If the inputs used to measure the financial
instruments fall within different levels of the hierarchy, the categorization is
based on the lowest level input that is significant to the fair value
measurement of the instrument.  A review of fair value hierarchy classifications
is conducted on a quarterly basis. Changes in the valuation inputs, or their
ability to be observed, may result in a reclassification for certain financial
assets or liabilities. Reclassifications impacting Level 3 of the fair value
hierarchy are reported as transfers in/out of the Level 3 category as of the end
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 March 31, 2010 and December 31, 2009, respectively.



March 31, 2010Level 1
			
			Level 2
			
			Level 3
			
			TotalFixed maturities:U.S. government obligations
			$                  -
			
			$   42,498,238
			
			$                  -
			
			$   42,498,238States and political subdivisions
			-
			
			32,508,599
			
			
			
			32,508,599Corporate
			-
			
			140,714,997
			
			4,571,312
			
			145,286,309Foreign
			-
			
			22,012,210
			
			-
			
			22,012,210Asset-backed securities
			-
			
			5,974,893
			
			411,077
			
			6,385,970Mortgage-backed securities:Commercial MBS
			-
			
			7,202,642
			
			-
			
			7,202,642Residential MBS
			-
			
			45,576,114
			
			-
			
			45,576,114Total fixed maturities
			$                  -
			
			$ 296,487,693
			
			$   4,982,389
			
			$ 301,470,082Equity securities:U.S. agencies
			$      552,800
			
			$                    -
			
			$                  -
			
			$        552,800Mutual funds
			2,365,827
			
			-
			
			-
			
			2,365,827Nonredeemable corporate preferred
			905,940
			
			-
			
			-
			
			905,940Corporate common stock
			192,397
			
			-
			
			344,000
			
			536,397Total equity securities
			$   4,016,964
			
			$                    -
			
			$      344,000
			
			$     4,360,964December 31, 2009Level 1
			
			Level 2
			
			Level 3
			
			TotalFixed maturities:U.S. government obligations
			$                  -
			
			$   41,831,989
			
			$      775,000
			
			$   42,606,989States and political subdivisions
			-
			
			29,201,967
			
			-
			
			29,201,967Corporate
			-
			
			135,913,379
			
			4,573,606
			
			140,486,985Foreign
			-
			
			21,793,290
			
			-
			
			21,793,290Asset-backed securities
			-
			
			6,065,114
			
			436,855
			
			6,501,969Mortgage-backed securities:Commercial MBS
			-
			
			6,965,481
			
			-
			
			6,965,481Residential MBS
			-
			
			47,685,902
			
			-
			
			47,685,902Total fixed maturities
			$                  -
			
			$ 289,457,122
			
			$   5,785,461
			
			$ 295,242,583Equity securities:U.S. agencies
			$      552,800
			
			$                    -
			
			$                  -
			
			$        552,800Mutual funds
			2,259,275
			
			-
			
			-
			
			2,259,275Nonredeemable corporate preferred
			839,690
			
			-
			
			-
			
			839,690Corporate common stock
			229,439
			
			-
			
			342,400
			
			571,839Total equity securities
			$   3,881,204
			
			$                    -
			
			$      342,400
			
			$     4,223,604




13



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At March 31, 2010, Level 3 financial instruments
consisted of four corporate fixed maturities, one asset-backed security, one
corporate redeemable preferred stock and one common stock, where trading has
been limited.  At December 31, 2009, Level 3 financial instruments consisted of
four corporate fixed maturities, one U.S. government obligation, one
asset-backed security, one corporate redeemable preferred stock and one common
stock, where trading has been limited.  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.  Fair
values for Level 1 and Level 2 assets are primarily based on quoted prices in
the market obtained via pricing services, which use observable inputs in
developing such rates.



The following table provides a summary of changes in fair
value of our Level 3 financial instruments for the three months ended March 31,
2010 and 2009, respectively.



Quarter Ended March 31, 2010U.S.
			Government
			Obligations
			
			Corporate
			
			Asset-
			Backed
			Securities
			
			Corporate
			Common
			Stock
			
			TotalBeginning balance
			$   775,000
			
			$ 4,573,606
			
			$    436,855
			
			$    342,400
			
			$ 6,127,861Transfers into Level 3
			-
			
			-
			
			-
			
			-
			
			-Transfers out of Level 3
			(787,793)
			
			-
			
			-
			
			-
			
			(787,793)Total gains or losses:
			
			
			
			
			
			
			
			
			-Included in earnings
			-
			
			-
			
			-
			
			-
			
			-Included in other comprehensive income
			12,793
			
			109,658
			
			11,723
			
			1,600
			
			135,774Net purchases (sales)
			-
			
			(111,952)
			
			(37,501)
			
			-
			
			(149,453)Ending balance
			$               -
			
			$ 4,571,312
			
			$    411,077
			
			$    344,000
			
			$ 5,326,389Quarter Ended March 31, 2009U.S.
			Government
			Obligations
			
			Corporate
			
			Asset-
			Backed
			Securities
			
			Corporate
			Common
			Stock
			
			TotalBeginning balance
			$ 2,037,998
			
			$ 4,588,512
			
			$ 1,599,571
			
			$    342,400
			
			$ 8,568,481Transfers into Level 3
			-
			
			-
			
			-
			
			-
			
			-Transfers out of Level 3
			-
			
			-
			
			-
			
			-
			
			-Total gains or losses:
			
			
			
			
			
			
			
			
			-Included in earnings
			-
			
			-
			
			-
			
			-
			
			-Included in other comprehensive income
			4,556
			
			(227,429)
			
			64,362
			
			-
			
			(158,511)Net purchases (sales)
			(113,081)
			
			870,641
			
			(34,662)
			
			-
			
			722,898Ending balance
			$ 1,929,473
			
			$ 5,231,724
			
			$ 1,629,271
			
			$    342,400
			
			$ 9,132,868




The
Company had no significant transfers of securities between Level 1 and 2 during
the period.  The Company had one U.S. government obligation which transferred
from Level 3 to Level 2 during the quarter ended March 31, 2010.  Transfers in
and/or (out) of Level 3 are primarily attributable to changes in the
availability of market observable information and re-evaluation of the
observability of pricing inputs.



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
contains the estimated fair values of financial instruments, as of March 31,
2010 and December 31, 2009.  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



14



---





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.



March 31, 2010
			
			December 31, 2009Carrying
			
			Fair
			
			Carrying
			
			FairAmount
			
			Value
			
			Amount
			
			ValueAssets:Fixed maturities
			$  301,470,082
			
			$  301,470,082
			
			$  295,242,583
			
			$  295,242,583Equity securities
			4,360,964
			
			4,360,964
			
			4,223,604
			
			4,223,604Mortgage loans on real estate:Commercial
			20,783,444
			
			20,637,343
			
			20,663,961
			
			20,630,855Residential
			27,977
			
			29,517
			
			28,905
			
			30,590Policy loans
			6,847,257
			
			6,847,257
			
			6,923,418
			
			6,923,418Other long-term investments
			956,820
			
			956,820
			
			1,026,604
			
			1,026,604Cash and cash equivalents
			3,385,796
			
			3,385,796
			
			5,730,782
			
			5,730,782Accrued investment income
			3,482,613
			
			3,482,613
			
			4,013,402
			
			4,013,402Cash value of company-ownedlife insurance
			8,746,559
			
			8,746,559
			
			8,671,833
			
			8,671,833Liabilities:Policyholder deposits(Investment-type contracts)
			$   51,141,461
			
			$   49,486,567
			
			$   51,172,871
			
			$   48,680,467Policy claims
			1,582,809
			
			1,582,809
			
			1,582,684
			
			1,582,684Obligations under capital leases
			171,344
			
			171,344
			
			147,644
			
			147,644Notes payable
			2,804,211
			
			2,706,674
			
			3,070,584
			
			2,962,395




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



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



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



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



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



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



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



15



---





borrowings based on information
gathered from market loan brokers.  The fair value for notes payable with
floating interest rates and promissory notes approximate the unpaid principal
balances on such notes.



NOTE F - Earnings per Share and Stock-Based
Compensation

Earnings per share of common stock were computed based on
the weighted average number of common shares outstanding during each period. The
weighted average number of shares outstanding for the three months ended March
31, 2010 and 2009 were 1,142,354 and 1,120,686, respectively.



The Company's previously issued stock options and option
plan terminated on September 24, 2009.  No options were exercised under the
plan.  Accordingly, there was no compensation expense recognized for the three
months ended March 31, 2010.  We recognized a decrease in compensation expense
relative to the previously outstanding options of $213,938 for the three months
ended March 31, 2009.



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.  Fees relative to third
party administrative services are also allocated 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 March 31,2010
			
			2009Revenue:Preneed and burial products
			$    9,514,719
			
			$     9,734,705Traditional and universal life products
			2,535,499
			
			2,478,715Credit insurance products andadministrative services
			59,308
			
			84,169Corporate and other
			449,177
			
			331,244$   12,558,703
			
			$   12,628,833Pre-tax income (loss) from operations:Preneed and burial products
			$      (494,074)
			
			$      (321,976)Traditional and universal life products
			(274,452)
			
			(104,890)Credit insurance products andadministrative services
			36,750
			
			46,164Corporate and other
			190,071
			
			300,074$      (541,705)
			
			$        (80,628)




NOTE H -Federal Income Taxes

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



We file U.S. federal income tax returns
and income tax returns in various state jurisdictions. Our 2006 through 2009
U.S. federal tax years remain subject to income tax examination by tax
authorities.  We



16



---





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 March 31,2010
			
			2009Total net unrealized gains (losses)arising during the period
			$     2,322,861
			
			$   (1,792,661)Less: Net realized investment gains
			72,811
			
			69,606Net unrealized gains (losses)
			2,250,050
			
			(1,862,267)Change in unrealized pension benefits
			64,586
			
			92,267Change in fair value of hedging instrument
			2,358
			
			1,183Net loss
			(394,144)
			
			(61,507)Total comprehensive income (loss)
			$     1,922,850
			
			$   (1,830,324)




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



NOTE J - Employee Benefit Plans

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



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



Quarter Ended March 31,2010
			
			2009Service cost
			$       94,571
			
			$        94,516Interest cost
			237,615
			
			235,174Expected return on plan assets
			(241,865)
			
			(170,572)Recognized net loss
			97,858
			
			139,798Net periodic benefit cost
			$     188,179
			
			$     298,916




We previously disclosed in our financial
statements for the year ended December 31, 2009 that we expected to contribute
$972,000 to our pension plan in 2010. As of March 31, 2010, $243,000 had been
contributed. We presently anticipate contributing an additional $729,000 to fund
our pension plan in 2010.



17



---





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



GENERAL

Investors Heritage Capital Corporation 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.



During the fourth quarter of 2008, we
introduced the Heritage Final Expense II product as a replacement for our
original Heritage Final Expense product sold in the final expense markets.  The
Heritage Final Expense II product 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 our traditional and universal life 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 eight 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.



18



---





CRITICAL ACCOUNTING POLICIES AND ESTIMATES



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



Investments in Fixed Maturities, Equity Securities
and Mortgage Loans

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



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



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



Deferred Acquisition Costs

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



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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 are
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.  Additionally, funding of plan
liabilities is sensitive to changes in investment returns as well as regulatory
changes, which can significantly impact our financial statements.



New Accounting Pronouncements

In
January 2010, the Financial Accounting Standards Board issued Accounting
Standards Update No. 2010-06, Improving Disclosures about Fair Value
Measurements ("ASU 2010-06").  The new guidance requires entities to
separately disclose information relative to transfers in and out of Levels 1 and
2 in the fair value hierarchy.  Additionally, ASU 2010-06 requires separate
presentation of transfers in, transfers out, purchases, sales, issuances and
settlements of Level 3 investments in the tabular reconciliation of Level 3
activity.  ASU 2010-06 also clarifies the level of disaggregation for which fair
value measurements should be disclosed and requires that information about input
and valuation techniques be disclosed for Level 2 and Level 3 assets and
liabilities.  The new disclosures and clarifications of existing disclosures are
effective for interim and annual reporting periods beginning after December 15,
2009, except for the disclosures about purchases, sales, issuances, and
settlements in the rollforward of activity in Level 3 fair value measurements.
Those disclosures are effective for fiscal years beginning after



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December
15, 2010, and for interim periods within those fiscal years.  We adopted this
guidance effective for the first quarter of 2010.



Refer to Note E to our condensed
consolidated financial statements for the disclosures required by the
above-mentioned new guidance.



INVESTMENTS, LIQUIDITY AND CAPITAL RESOURCES



Investments

Investors Heritage Life maintains a
sound, conservative investment strategy. At March 31, 2010, 90.1% of invested
assets consisted of fixed income securities compared to 90.0% at December 31,
2009. At March 31, 2010 and December 31, 2009, Investors Heritage Life's fixed
income investments were 97.7% investment grade as rated by Standard & Poor's.



We have reviewed our investment portfolio
and do not believe that there are additional securities that are
other-than-temporarily impaired at March 31, 2010 beyond the impairments already
taken in previous periods.  Other than the previously impaired Lehman Brothers
Holdings bonds, which have since been sold subsequent to the end of the quarter,
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 recorded no other-than-temporary impairment charges in the consolidated
statements of income during the quarters ended March 31, 2010 and 2009.



We continuously monitor the
investment risk within our portfolio, including the risk associated with
subprime lending with our CMO investments.  As of March 31, 2010, we have only
one CMO, with a fair value of approximately $58,000, 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 March 31,
2010, 6.2% of invested assets consisted of mortgage loans compared to 6.3% at
December 31, 2009. We anticipate maintaining a similar to slightly higher
percentage of mortgage loans to total invested assets into the near future. As
of March 31, 2010, 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



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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 March 31, 2010, 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.



RESULTS OF OPERATIONS



Overview

Premiums earned (net of reinsurance) were
$7,908,772 for the first quarter of 2010 (an increase of 0.1% compared to the
first quarter of 2009).  Our recent product offerings are performing well
compared to prior products, although current economic conditions continue to
limit disposable income typically used as a source for new sales in many of our
markets.



Net investment income was $4,263,570 for
the first quarter of 2010 (a decrease of 4.0% compared to the first quarter of
2009).  The fluctuating economic environment continues to put significant
pressure on new investment yields.



Net realized gains (losses) were $72,811
and $69,606 for the three month periods ended March 31, 2010 and 2009,
respectively. We have not experienced any other-than-temporary impairments
during either of these periods.



Other income was $313,550 for the first
quarter of 2010 (an increase of 44.6% compared to the first quarter of 2009). 
Our revenues received from our TPA arrangements has significantly increased over
the same period in the prior year due to new relationships as well as expanded
activity in one current relationship.



Total revenue was $12,558,703 for the
first quarter of 2010 (a decrease of 0.6% compared to the first quarter of
2009).  This decrease primarily reflects the investment yield pressures
previously discussed.



Total benefits and expenses were
$13,100,408 in the first quarter of 2010 (an increase of 3.1% compared to the
first quarter of 2009).  This increase is primarily driven by commission and
reserve increases, higher than anticipated claims in the traditional line, an
increase in net amortization of deferred acquisition costs and an increase in
employee salary expense.



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After providing for federal income taxes,
our net loss was $394,144 with a net loss per share of $0.35 for the first
quarter of 2010 as compared to a net loss of $61,507 and a net loss per share of
$0.05 for the first quarter of 2009.



We declared a dividend of $0.13 per share
on March 11, 2010 to shareholders of record on March 26, 2010.  This dividend
was paid on April 9, 2010.



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 $9,514,719 for the first
quarter of 2010 (a decrease of 2.3% compared to the first quarter of 2009).  The
decrease for the quarter is driven primarily by lower investment yields. 
Pre-tax loss from operations was $494,074 and $321,976 for the three month
period ended March 31, 2010 and 2009, respectively.  This reduction was likewise
due to the reduction in investment earnings.



Traditional and Universal Life Products
include traditional life and group life insurance products, certain annuities
and universal life products. Revenues for this segment were $2,535,499 for the
first quarter of 2010 (an increase of 2.3% compared to the first quarter of
2009).  Revenues on this segment are primarily derived from the sale of term
insurance products through banks, for which demand fluctuates along with
economic conditions. While consumer credit markets remain tight, our recent
products have performed well.  Pre-tax loss from operations was $274,452 and
$104,890 for the three month periods ended March 31, 2010 and 2009,
respectively. The increase in the pre-tax loss was primarily attributable to
higher than anticipated claims coupled with the reduction in investment earnings
over the comparable period in the prior year.



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 $59,308 for the first
quarter of 2010 (a decrease of 29.5% compared to the first quarter of 2009).
 Pre-tax income from operations was $36,750 and $46,164 for the three month
periods ended March 31, 2010 and 2009, respectively.  These decreases in revenue
and pre-tax income are directly related to lower premium production within this
segment of the business due to current economic and lending conditions.



Corporate and Other consists of corporate
accounts measured primarily by stockholders' paid-in capital, contributed
surplus, earned surplus, property and equipment, and other minor business lines
which include group annuities and group and individual accident and health
products. This segment also includes fees generated from our TPA arrangements as
well as the impact of realized investment gains and losses.  Revenues, including
net realized investment gains (losses), for this segment were $449,177 and
$331,244 for the three month periods ended March 31, 2010 and 2009,
respectively.  Pre-tax income from operations was $190,071 and $300,074 for the
three month periods ended March 31, 2010 and 2009, respectively. The current
period improvement over prior periods was due to the increase in fees generated
from our TPA arrangements, 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 3% of Investors Heritage
Financial's revenue for the three months ended March 31, 2010 was derived from
the sale of Investors Heritage Life's credit insurance products.



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During the first three months of 2010,
Investors Heritage Capital received dividends from Investors Heritage Financial
totaling $31,000 and received distributions from At Need Funding of $38,000. We
anticipate further dividend payments from Investors Heritage Financial and
distributions from At Need Funding during the remainder of 2010.



Federal Income Taxes

The provision for federal income taxes is
based on the estimated effective annual tax rate. Deferred taxes reflect the net
tax effects of temporary differences between the carrying amounts of assets and
liabilities for financial reporting purposes and the amounts used for income tax
purposes. Income before federal income taxes differs from taxable income
principally due to the dividends-received deduction, the 404(k) dividend
deduction and the small life insurance company tax deduction. The effective tax
rate was 27.2% for the three month period ended March 31, 2010, compared to
23.7% for the three month period ended March 31, 2009.



OFF-BALANCE SHEET ARRANGEMENTS



We have no off-balance sheet arrangements
as of March 31, 2010.



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.



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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 May 14, 2010, 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. (Removed and Reserved)



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: May 14, 2010
			PresidentBY: /s/Raymond L. CarrRaymond L. CarrDATE: May 14, 2010
			Vice President - Chief Financial Officer




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