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, 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 August 9 , 2010 - 1,151,817.276



---





CONTENTS





PART I -- FINANCIAL INFORMATIONPageITEM 1.
			Condensed Consolidated Financial Statements
			4ITEM 2.
			Management's Discussion and Analysis of
			Financial Condition and Results of Operations
			20ITEM 4T.
			Controls and Procedures
			28PART II -- OTHER INFORMATIONITEM 1.
			Legal
			Proceedings
			29ITEM 2.
			Unregistered Sales of Equity Securities and Use of Proceeds
			29ITEM 3.
			Defaults
			Upon Senior Securities
			29ITEM 4.
			(Removed
			and Reserved)
			29ITEM 5.
			Other
			Information
			29ITEM 6.
			Exhibits
			29SIGNATURES
			
			30EXHIBIT 31.1
			
			31EXHIBIT 31.2
			
			33EXHIBIT 32
			
			35




3



---





PART I -- FINANCIAL INFORMATION




ITEM
1.  Condensed Consolidated Financial Statements



INVESTORS HERITAGE CAPITAL CORPORATION

Condensed
Consolidated Balance Sheets (Unaudited)



June 30,
			
			December 31,ASSETS
			
			2010
			
			2009Investments:Securities available-for-sale, at fair
			value:Fixed maturities (amortized cost:
			$287,431,419 and $282,864,572)
			
			$ 
			310,482,718
			
			$ 
			295,242,583Equity securities (cost: $4,074,198 and
			$4,063,905)
			
			4,164,143
			
			4,223,604Mortgage loans on real estate
			
			21,705,439
			
			20,692,866Policy loans
			
			6,895,058
			
			6,923,418Other long-term investments
			
			910,944
			
			1,026,604Total investments
			
			344,158,302
			
			328,109,075Cash and cash equivalents
			
			2,016,530
			
			5,730,782Accrued investment income
			
			3,929,116
			
			4,013,402Due premiums
			
			3,422,957
			
			3,613,278Deferred acquisition costs
			
			17,862,919
			
			18,703,379Present value of future profits
			
			4,323
			
			12,968Leased property under capital leases
			
			137,052
			
			143,653Property and equipment
			
			1,670,274
			
			1,746,849Cash value of company-owned life insurance
			
			8,284,937
			
			8,671,833Other assets
			
			1,857,341
			
			312,852Amounts recoverable from reinsurers
			
			44,759,509
			
			47,521,019$ 
			428,103,260
			
			$
			 418,579,090LIABILITIES AND STOCKHOLDERS' EQUITYLIABILITIESPolicy liabilities:Benefit reserves
			
			$ 
			343,496,006
			
			$ 
			343,935,852Unearned premium reserves
			
			8,772,571
			
			10,543,520Policy claims
			
			1,631,055
			
			1,582,684Liability for deposit-type contracts
			
			2,834,739
			
			2,742,986Reserves for dividends and endowments and
			other
			
			450,061
			
			425,419Total policy liabilities
			
			357,184,432
			
			359,230,461Deferred federal income tax liability
			
			7,903,888
			
			4,285,842Obligations under capital leases
			
			132,679
			
			147,644Notes payable
			
			2,559,128
			
			3,070,584Accrued pension liability
			
			3,998,899
			
			4,304,257Other liabilities
			
			2,748,889
			
			1,865,423Total liabilities
			
			374,527,915
			
			372,904,211STOCKHOLDERS' EQUITYCommon stock (shares issued:  1,151,817 and
			1,141,767)
			
			1,151,817
			
			1,141,767Paid-in surplus
			
			8,801,514
			
			8,716,135Accumulated other comprehensive income
			
			11,427,971
			
			4,495,103Retained earnings
			
			32,194,043
			
			31,321,874Total stockholders' equity
			
			53,575,345
			
			45,674,879$ 
			428,103,260
			
			$ 
			418,579,090




See notes to
consolidated financial statements.



4





---





INVESTORS HERITAGE CAPITAL CORPORATION

Condensed
Consolidated Income Statements (Unaudited)



Quarter Ended June 30,
			
			Six
			Months Ended June 30,2010
			
			2009
			
			2010
			
			2009REVENUEPremiums and other considerations
			$  10,735,643
			
			$  10,805,292
			
			$  20,013,827
			
			$  20,718,561Premiums ceded
			(2,223,189)
			
			(2,584,113)
			
			(3,592,601)
			
			(4,595,081)Net premiums earned
			8,512,454
			
			8,221,179
			
			16,421,226
			
			16,123,480Investment income, net of expenses
			4,251,553
			
			4,343,383
			
			8,515,123
			
			8,783,544Net realized investment gains (losses) on
			investments:Total other-than-temporary impairment
			losses
			-
			
			(977,830)
			
			-
			
			(977,830)Portion of loss recognized inother comprehensive income
			-
			
			-
			
			-
			
			-Other net realized investment gains
			504,919
			
			41,648
			
			577,730
			
			111,254Net realized investment gains (losses) on
			investments
			504,919
			
			(936,182)
			
			577,730
			
			(866,576)Other income
			1,290,788
			
			292,693
			
			1,604,338
			
			509,458Total revenue
			14,559,714
			
			11,921,073
			
			27,118,417
			
			24,549,906BENEFITS AND EXPENSESDeath and other benefits
			7,417,817
			
			7,644,959
			
			15,921,530
			
			16,367,978Guaranteed annual endowments
			139,932
			
			143,952
			
			266,171
			
			276,375Dividends to policyholders
			141,906
			
			140,398
			
			259,639
			
			257,335Increase in benefit reserves and unearned
			premiums
			1,684,866
			
			1,108,358
			
			2,413,951
			
			1,548,717Acquisition costs deferred
			(1,178,687)
			
			(1,257,420)
			
			(2,290,724)
			
			(2,472,854)Amortization of deferred acquisition costs
			1,414,617
			
			1,393,088
			
			2,698,544
			
			2,618,399Commissions
			650,784
			
			629,765
			
			1,237,652
			
			1,144,904Other insurance expenses
			2,597,562
			
			2,843,278
			
			5,462,442
			
			5,614,985Total benefits and expenses
			12,868,797
			
			12,646,378
			
			25,969,205
			
			25,355,839INCOME (LOSS) BEFOREFEDERAL INCOME TAXES
			1,690,917
			
			(725,305)
			
			1,149,212
			
			(805,933)PROVISION (BENEFIT) FORFEDERAL INCOME TAXESCurrent
			70,197
			
			(12,285)
			
			59,385
			
			172,056Deferred
			318,699
			
			(187,413)
			
			181,950
			
			(390,875)388,896
			
			(199,698)
			
			241,335
			
			(218,819)NET INCOME (LOSS)
			$    1,302,021
			
			$      (525,607)
			
			$       907,877
			
			$      (587,114)BASIC AND DILUTED NETINCOME (LOSS) PER SHARE
			$             1.14
			
			$            (0.47)
			
			$             0.79
			
			$            (0.52)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
			-
			
			-
			
			-
			
			(587,114)
			
			(587,114)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
			
			
			
			
			
			
			
			
			2,341,377Issuances of common stock, net
			8,780
			
			(17,487)
			
			-
			
			214,160
			
			205,453BALANCE, JUNE 30, 2009
			$1,129,466
			
			$8,688,005
			
			$        113,921
			
			$30,068,398
			
			$ 39,999,790BALANCE, JANUARY 1, 2010
			$1,141,767
			
			$8,716,135
			
			$     4,495,103
			
			$31,321,874
			
			$ 45,674,879Comprehensive income:Net income
			-
			
			-
			
			-
			
			907,877
			
			907,877Change in net unrealized appreciationon available-for-sale securities
			-
			
			-
			
			6,801,338
			
			-
			
			6,801,338Change in unrealized pension benefits
			-
			
			-
			
			129,172
			
			-
			
			129,172Change in fair value of hedging instrument
			-
			
			-
			
			2,358
			
			-
			
			2,358Total comprehensive income
			
			
			
			
			
			
			
			
			7,840,745Cash dividends
			-
			
			-
			
			-
			
			(160,821)
			
			(160,821)Issuances of common stock, net
			10,050
			
			85,379
			
			-
			
			125,113
			
			220,542BALANCE, JUNE 30, 2010
			$1,151,817
			
			$8,801,514
			
			$   11,427,971
			
			$32,194,043
			
			$ 53,575,345




See notes to
condensed consolidated financial statements.



6



---





INVESTORS HERITAGE CAPITAL CORPORATION

Condensed
Consolidated Statements of Cash Flows (Unaudited)



Six
			Months Ended June 30,2010
			
			
			2009NET CASH PROVIDED BY OPERATING ACTIVITIES
			
			
			$     3,860,365
			
			
			$     2,399,536INVESTING ACTIVITIESSecurities available-for-sale:Purchases
			
			
			(21,934,551)
			
			
			(29,070,692)Sales and maturities
			
			
			17,778,855
			
			
			26,731,786Other investments:Cost of acquisitions
			
			
			(2,271,057)
			
			
			(602,360)Sales and maturities
			
			
			1,402,503
			
			
			880,112Net additions to property and equipment
			
			
			(95,241)
			
			
			(58,366)NET CASH USED IN INVESTING ACTIVITIES
			
			
			(5,119,491)
			
			
			(2,119,520)FINANCING ACTIVITIESReceipts from universal life policies
			credited topolicyholder account balances
			
			
			2,945,168
			
			
			3,502,911Return of policyholder account balances on
			universal life policies
			
			
			(4,948,559)
			
			
			(3,923,217)Payments on notes payable
			
			
			(1,854,351)
			
			
			(1,855,561)Proceeds from notes payable
			
			
			1,342,895
			
			
			1,500,130Dividends paid
			
			
			(160,821)
			
			
			-Issuances of common stock, net
			
			
			220,542
			
			
			205,453NET CASH USED IN FINANCING
			ACTIVITIES
			
			
			(2,455,126)
			
			
			(570,284)DECREASE IN CASH AND CASH EQUIVALENTS
			
			
			(3,714,252)
			
			
			(290,268)Cash and cash equivalents at beginning of
			period
			
			
			5,730,782
			
			
			2,819,257CASH AND CASH EQUIVALENTS AT END OF PERIOD
			
			
			$     2,016,530
			
			
			$     2,528,989




See notes to
consolidated financial statements.



7



---





INVESTORS HERITAGE CAPITAL CORPORATION



NOTES TO
CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

June 30, 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 97% of Investors Heritage Capital's consolidated revenue is
generated by Investors Heritage Life.



Our principal 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 and six months ended June 30, 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 June
30, 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,



8



---





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 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:



Gross
			
			GrossJune 30, 2010
			Amortized
			
			Unrealized
			
			Unrealized
			
			FairCost
			
			Gains
			
			Losses
			
			ValueFixed maturity securities:U.S. government obligations
			$ 41,473,902
			
			$ 3,356,146
			
			$              -
			
			$ 44,830,048States and political subdivisions
			32,358,705
			
			2,024,435
			
			931
			
			34,382,209Corporate
			139,349,196
			
			11,963,791
			
			405,883
			
			150,907,104Foreign
			20,377,322
			
			2,374,084
			
			225,506
			
			22,525,900Asset-backed securities
			5,979,323
			
			549,167
			
			-
			
			6,528,490Mortgage-backed securities (MBS):Commercial MBS
			8,071,990
			
			294,418
			
			-
			
			8,366,408Residential MBS
			39,820,981
			
			3,121,578
			
			-
			
			42,942,559Total fixed maturity securities
			287,431,419
			
			23,683,619
			
			632,320
			
			310,482,718Equity securities:U.S. agencies
			552,800
			
			-
			
			-
			
			552,800Mutual funds
			2,077,172
			
			158,300
			
			114,312
			
			2,121,160Nonredeemable corporate preferred
			990,000
			
			42,810
			
			-
			
			1,032,810Corporate common stock
			454,226
			
			226,533
			
			223,386
			
			457,373Total equity securities
			4,074,198
			
			427,643
			
			337,698
			
			4,164,143Total
			$291,505,617
			
			$24,111,262
			
			$   970,018
			
			$314,646,861Gross
			
			GrossDecember 31, 2009
			Amortized
			
			Unrealized
			
			Unrealized
			
			FairCost
			
			Gains
			
			Losses
			
			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.



June 30, 2010
			
			December 31, 2009Gross
			
			Number
			
			
			
			Gross
			
			NumberEstimated
			
			Unrealized
			
			of
			
			Estimated
			
			Unrealized
			
			ofFair Value
			
			Loss
			
			Securities
			
			Fair Value
			
			Loss
			
			SecuritiesFixed
			Maturities:Less than 12
			months:U.S.
			government obligations
			
			$                   -
			
			$                 -
			
			-
			
			$    8,696,858
			
			$     162,272
			
			5States and
			political subdivisions
			
			783,556
			
			931
			
			1
			
			8,770,601
			
			197,072
			
			10Corporate
			
			3,489,435
			
			6,023
			
			3
			
			9,157,525
			
			123,638
			
			9Commercial MBS
			
			-
			
			-
			
			-
			
			975,464
			
			27,495
			
			1Residential
			MBS
			
			-
			
			-
			
			-
			
			998,540
			
			10,662
			
			1Greater than 12
			months:States and
			political subdivisions
			
			-
			
			-
			
			-
			
			948,460
			
			51,540
			
			1Corporate
			
			7,809,530
			
			399,860
			
			9
			
			8,683,320
			
			546,712
			
			10Foreign
			
			1,747,010
			
			225,506
			
			2
			
			1,662,130
			
			308,899
			
			2Asset-backed
			securities
			
			-
			
			-
			
			-
			
			493,212
			
			112,098
			
			2Commercial MBS
			
			-
			
			-
			
			-
			
			2,939,812
			
			89,373
			
			3Total fixed
			maturities
			
			13,829,531
			
			632,320
			
			15
			
			43,325,922
			
			1,629,761
			
			44Equities:Less than 12
			months:Mutual funds
			
			665,078
			
			100,398
			
			1
			
			-
			
			-
			
			-Corporate
			common stock
			
			113,373
			
			223,386
			
			1
			
			229,439
			
			107,320
			
			1Greater than 12
			months:Nonredeemable corporate preferred
			
			-
			
			-
			
			-
			
			839,690
			
			150,310
			
			1Mutual funds
			
			304,370
			
			13,914
			
			1
			
			1,022,159
			
			57,202
			
			2Total equities
			
			1,082,821
			
			337,698
			
			3
			
			2,091,288
			
			314,832
			
			4Total
			
			$  14,912,352
			
			$     970,018
			
			18
			
			$   45,417,210
			
			$   1,944,593
			
			48




As of June 30, 2010, all of the
above fixed maturity securities individually had a fair value to cost ratio
equal to or greater than 83% and the equity securities noted above had a fair
value to cost ratio of over 34%.  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 June 30, 2010 and December 31, 2009, the Company's fixed maturity
securities were 97.5% and 97.7% investment grade as rated by Standard & Poor's,
respectively.



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 quarter or six months ended June 30,
2010.  During the second quarter of 2009, the Company impaired certain CIT and
Alcoa bonds generating a total impairment charge of $977,830.  Those bonds were
sold during the third quarter of 2009.



During the second quarter of
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 has been 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.



June 30,
			
			December 31,2010
			
			2009Net unrealized
			appreciation onavailable-for
			sale securities
			$ 23,141,244
			
			$ 12,537,710Adjustment to
			deferred acquisition costs
			(972,136)
			
			(539,494)Deferred
			income taxes
			(7,804,270)
			
			(4,434,716)Net unrealized
			appreciation onavailable-for
			sale securities
			$ 14,364,838
			
			$  7,563,500




The amortized cost and fair
value of fixed maturity securities at June 30, 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
			
			FairCost
			
			ValueDue in one year
			or less
			$        11,939,671
			
			$        12,287,945Due after one
			year through five years
			79,307,024
			
			85,018,399Due after five
			years through ten years
			89,913,248
			
			97,591,040Due after ten
			years
			58,378,505
			
			64,276,367Due at multiple
			maturity dates
			47,892,971
			
			51,308,967Total
			$      287,431,419
			
			$      310,482,718




Proceeds for the quarters ended
June 30, 2010 and 2009 from sales and maturities of investments in
available-for-sale securities were $9,285,335 and $11,654,215, respectively. 
Gross gains of $504,919 and $54,817 and gross losses of $0 and $13,169 were
realized on those sales during the quarters ended June 30, 2010 and 2009,
respectively.  Proceeds for the six months ended June 30, 2010 and 2009 from
sales and maturities of investments in available-for-sale securities were
$17,778,855 and $26,731,786, respectively.  Gross gains of $582,329 and $126,352
and gross losses of $4,599 and $15,098 were realized on those sales during the
six month periods ended June 30, 2010 and 2009, respectively.



11



---





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 quarters and six months ended June 30, 2010 and 2009.



Quarter Ended June 30,
			
			Six Months Ended June 30,2010
			
			2009
			
			2010
			
			2009Change in
			unrealized investmentgains
			(losses):Available-for-sale:Fixed
			maturities
			$  7,299,640
			
			$  6,702,543
			
			$  10,673,288
			
			$  3,572,772Equity
			securities
			(202,346)
			
			614,011
			
			(69,754)
			
			268,733Realized
			investment gains (losses):Available-for-sale:Fixed
			maturities
			$     504,919
			
			$   (936,182)
			
			$       577,730
			
			$   (866,576)Equity
			securities
			-
			
			-
			
			-
			
			-






Major categories of net
investment income are summarized as follows:



Quarter Ended June 30,
			
			Six Months Ended June 30,2010
			
			2009
			
			2010
			
			2009Fixed maturities
			$     3,919,855
			
			$     3,960,649
			
			$     7,846,800
			
			$     8,011,480Mortgage loans
			on real estate
			368,948
			
			405,170
			
			746,502
			
			809,980Other
			189,552
			
			201,623
			
			375,424
			
			401,9904,478,355
			
			4,567,442
			
			8,968,726
			
			9,223,450Investment
			expenses
			226,802
			
			224,059
			
			453,603
			
			439,906$     4,251,553
			
			$     4,343,383
			
			$     8,515,123
			
			$     8,783,544




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.



12



---





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



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





13



---





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, 2010 and
December 31, 2009, respectively.



June 30, 2010Level 1
			
			Level 2
			
			Level 3
			
			TotalFixed
			maturities:U.S. government
			obligations
			$                    -
			
			$   43,783,768
			
			$     1,046,280
			
			$   44,830,048States and
			political subdivisions
			-
			
			34,382,209
			
			-
			
			34,382,209Corporate
			-
			
			146,022,148
			
			4,884,956
			
			150,907,104Foreign
			-
			
			22,525,900
			
			-
			
			22,525,900Asset-backed
			securities
			-
			
			6,528,490
			
			-
			
			6,528,490Mortgage-backed
			securities:Commercial
			MBS
			-
			
			8,366,408
			
			-
			
			8,366,408Residential
			MBS
			-
			
			42,942,559
			
			-
			
			42,942,559Total fixed
			maturities
			$                    -
			
			$  304,551,482
			
			$     5,931,236
			
			$  310,482,718Equity
			securities:U.S. agencies
			$        552,800
			
			$                    -
			
			$                    -
			
			$        552,800Mutual funds
			2,121,160
			
			-
			
			-
			
			2,121,160Nonredeemable
			corporate preferred
			-
			
			1,032,810
			
			-
			
			1,032,810Corporate common
			stock
			113,373
			
			-
			
			344,000
			
			457,373Total equity
			securities
			$     2,787,333
			
			$     1,032,810
			
			$        344,000
			
			$     4,164,143December 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






At June 30, 2010, Level 3
financial instruments consisted of one U.S. government obligation, four
corporate fixed maturities, 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.





14



---





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, 2010 and 2009,
respectively.



Quarter Ended June 30, 2010U.S.
			
			
			
			Asset-
			
			CorporateGovernment
			
			
			
			Backed
			
			CommonObligations
			
			Corporate
			
			Securities
			
			Stock
			
			TotalBeginning
			balance
			$                 -
			
			$   4,571,312
			
			$      411,077
			
			$      344,000
			
			$  5,326,389Transfers into
			Level 3
			-
			
			-
			
			-
			
			-
			
			-Transfers out of
			level 3
			-
			
			-
			
			(411,077)
			
			-
			
			(411,077)Total gains or
			losses:Included in
			earnings
			-
			
			-
			
			-
			
			-
			
			-Included in
			other comprehensive income
			49,092
			
			313,644
			
			-
			
			-
			
			362,736Net purchases
			(sales)
			997,188
			
			-
			
			-
			
			-
			
			997,188Ending balance
			$   1,046,280
			
			$   4,884,956
			
			$                 -
			
			$      344,000
			
			$  6,275,236Quarter Ended June 30, 2009U.S.
			
			
			
			Asset-
			
			CorporateGovernment
			
			
			
			Backed
			
			CommonObligations
			
			Corporate
			
			Securities
			
			Stock
			
			TotalBeginning
			balance
			$   1,929,473
			
			$   5,231,724
			
			$   1,629,271
			
			$      342,400
			
			$  9,132,868Transfers into
			Level 3
			-
			
			-
			
			-
			
			-
			
			-Transfers out of
			level 3
			(1,612,770)
			
			-
			
			-
			
			-
			
			(1,612,770)Total gains or
			losses:Included in
			earnings
			-
			
			-
			
			-
			
			-
			
			-Included in
			other comprehensive income
			(22,489)
			
			184,658
			
			21,100
			
			-
			
			183,269Net purchases
			(sales)
			705,486
			
			775,215
			
			(35,411)
			
			-
			
			1,445,290Ending balance
			$      999,700
			
			$   6,191,597
			
			$   1,614,960
			
			$       342,400
			
			$  9,148,657Six Months Ended June 30, 2010U.S.
			
			
			
			Asset-
			
			CorporateGovernment
			
			
			
			Backed
			
			CommonObligations
			
			Corporate
			
			Securities
			
			Stock
			
			TotalBeginning
			balance
			$       775,000
			
			$   4,573,606
			
			$       436,855
			
			$       342,400
			
			$  6,127,861Transfers into
			Level 3
			-
			
			-
			
			-
			
			-
			
			-Transfers out of
			level 3
			(775,000)
			
			-
			
			(411,077)
			
			-
			
			(1,186,077)Total gains or
			losses:Included in
			earnings
			-
			
			-
			
			-
			
			-
			
			-Included in
			other comprehensive income
			49,092
			
			423,818
			
			11,923
			
			1,600
			
			486,433Net purchases
			(sales)
			997,188
			
			(112,468)
			
			(37,701)
			
			-
			
			847,019Ending balance
			$   1,046,280
			
			$   4,884,956
			
			$                  -
			
			$       344,000
			
			$  6,275,236Six Months Ended June 30, 2009U.S.
			
			
			
			Asset-
			
			CorporateGovernment
			
			
			
			Backed
			
			CommonObligations
			
			Corporate
			
			Securities
			
			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
			(1,612,770)
			
			-
			
			-
			
			-
			
			(1,612,770)Total gains or
			losses:Included in
			earnings
			-
			
			-
			
			-
			
			-
			
			-Included in
			other comprehensive income
			(17,933)
			
			(42,771)
			
			85,462
			
			-
			
			24,758Net purchases
			(sales)
			592,405
			
			1,645,856
			
			(70,073)
			
			-
			
			2,168,188Ending balance
			$       999,700
			
			$   6,191,597
			
			$   1,614,960
			
			$       342,400
			
			$  9,148,657






15



---





The Company had one transfer of a nonredeemable
preferred stock from Level 1 to Level 2 during the period.  Trading for this
preferred stock has been limited, which restricts the use of Level 1 inputs into
pricing.  The Company had one U.S. government obligation which transferred from
Level 3 to Level 2 during the quarter ended March 31, 2010 as well as one
asset-backed security which transferred from Level 3 to Level 2 during the
quarter ended June 30, 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 June 30, 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 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, 2010
			
			December 31, 2009Carrying
			
			Fair
			
			Carrying
			
			FairAmount
			
			Value
			
			Amount
			
			ValueAssets:Fixed maturities
			$  310,482,718
			
			$  310,482,718
			
			$  295,242,583
			
			$  295,242,583Equity securities
			4,164,143
			
			4,164,143
			
			4,223,604
			
			4,223,604Mortgage loans on real estate:Commercial
			21,678,416
			
			21,816,406
			
			20,663,961
			
			20,630,855Residential
			27,023
			
			28,582
			
			28,905
			
			30,590Policy loans
			6,895,058
			
			6,895,058
			
			6,923,418
			
			6,923,418Other long-term investments
			910,944
			
			910,944
			
			1,026,604
			
			1,026,604Cash and cash equivalents
			2,016,530
			
			2,016,530
			
			5,730,782
			
			5,730,782Accrued investment income
			3,929,116
			
			3,929,116
			
			4,013,402
			
			4,013,402Cash value of company-ownedlife insurance
			8,284,937
			
			8,284,937
			
			8,671,833
			
			8,671,833Liabilities:Policyholder deposits(Investment-type contracts)
			$    50,938,139
			
			$    51,493,696
			
			$    51,172,871
			
			$    48,680,467Policy claims
			1,631,055
			
			1,631,055
			
			1,582,684
			
			1,582,684Obligations under capital leases
			132,679
			
			132,679
			
			147,644
			
			147,644Notes payable
			2,559,128
			
			2,532,812
			
			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.



16



---





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 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 quarters ended June 30, 2010 and 2009 were 1,145,505 and
1,125,932, respectively.  The weighted average number of shares outstanding for
the six month periods ended June 30, 2010 and 2009 were 1,145,330 and 1,123,324,
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 or six month periods ended June 30, 2010.  We
recognized no change in the compensation expense relative to the previously
outstanding options for the quarter ended June 30, 2009, and we recognized a
decrease in compensation expense relative to the previously outstanding options
of $213,938 for the six months ended June 30, 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.



17



---





Quarter Ended June 30,
			
			Six Months Ended June 30,2010
			
			2009
			
			2010
			
			2009Revenue:Preneed and
			burial products
			$   10,152,989
			
			$      9,904,070
			
			$   19,667,708
			
			$    19,638,775Traditional
			and universal life products
			2,486,000
			
			2,533,125
			
			5,021,499
			
			5,011,840Credit
			insurance products andadministrative services
			76,120
			
			92,927
			
			135,428
			
			177,096Corporate and
			other
			1,844,605
			
			(609,049)
			
			2,293,782
			
			(277,805)$   14,559,714
			
			$    11,921,073
			
			$   27,118,417
			
			$    24,549,906Pre-tax
			income (loss) from operations:Preneed and
			burial products
			$        (38,761)
			
			$             3,070
			
			$      (532,835)
			
			$       (318,906)Traditional
			and universal life products
			79,015
			
			138,308
			
			(195,437)
			
			33,418Credit
			insurance products andadministrative services
			43,072
			
			59,771
			
			79,822
			
			105,935Corporate and
			other
			1,607,591
			
			(926,454)
			
			1,797,662
			
			(626,380)$    1,690,917
			
			$       (725,305)
			
			$     1,149,212
			
			$       (805,933)




Included in Corporate and
other above and as a component of other income in the consolidated income
statement for the three and six months ended June 30, 2010 is $900,697 of net
life insurance proceeds received under a company-owned life insurance policy
upon the death of a former member of management.



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; the small life insurance company tax deduction; and
non-taxable effects of company-owned life insurance premiums, cash value growth,
and death benefit proceeds.



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 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.



18



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NOTE I -- Comprehensive Income

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



Quarter Ended June 30,
			
			Six Months Ended June 30,2010
			
			2009
			
			2010
			
			2009Total net
			unrealized gainsarising
			during the period
			$        5,056,207
			
			$       3,667,623
			
			$       7,379,068
			
			$       1,874,962Less: Net
			realized investment gains (losses)
			504,919
			
			(936,182)
			
			577,730
			
			(866,576)Net unrealized
			gains
			4,551,288
			
			4,603,805
			
			6,801,338
			
			2,741,538Change in
			unrealized pension benefits
			64,586
			
			92,266
			
			129,172
			
			184,533Change in fair
			value of hedging instrument
			-
			
			1,237
			
			2,358
			
			2,420Net income
			(loss)
			1,302,021
			
			(525,607)
			
			907,877
			
			(587,114)Total
			comprehensive income
			$        5,917,895
			
			$       4,171,701
			
			$       7,840,745
			
			$       2,341,377




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 June 30,
			
			Six Months Ended June 30,2010
			
			2009
			
			2010
			
			2009Service cost
			$       94,571
			
			$       94,516
			
			$     189,142
			
			$     189,032Interest cost
			237,615
			
			235,173
			
			475,230
			
			470,347Expected return
			on plan assets
			(241,865)
			
			(170,572)
			
			(483,730)
			
			(341,144)Recognized net
			loss
			97,857
			
			139,798
			
			195,715
			
			279,596Net periodic
			benefit cost
			$     188,178
			
			$     298,915
			
			$     376,357
			
			$     597,831




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 June 30,
2010, $486,000 had been contributed. We presently anticipate contributing an
additional $486,000 to fund our pension plan in 2010.



NOTE K --
Subsequent Event

During the third quarter
of 2010, the Company assumed the covered obligations of the Texas Life,
Accident, Health, and Hospital Service Insurance Guaranty Association related to
a block of preneed policies originally issued by Texas Memorial Life Insurance
Company.  The Company received cash in exchange for assuming the covered
obligations.  While the impact of this
transaction on the financial statements has not yet been fully measured, the
transaction is expected to generate additional present value of future profits
that will be amortized through income over the expected life of the assumed
policies.  The amount of cash to be received and expected impact on policy
reserves are approximately $2,950,000 and $3,800,000, respectively.



19



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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.



During the third quarter
of 2010, we assumed the covered obligations of the Texas Life, Accident, Health,
and Hospital Service Insurance Guaranty Association related to a block of
preneed policies originally issued by Texas Memorial Life Insurance Company.  We
received cash in exchange for assuming the covered obligations. 
While the impact of this transaction on the financial statements has not yet
been fully measured, the transaction is expected to generate additional present
value of future profits that will be amortized through income over the expected
life of the assumed policies.  The amount of cash to be received and expected
impact on policy reserves are approximately $2,950,000 and $3,800,000,
respectively.



20



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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 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.



21



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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 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



22



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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
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 June 30, 2010, 90.2% of
invested assets consisted of fixed income securities compared to 90.0% at
December 31, 2009. At June 30, 2010 and December 31, 2009, Investors Heritage
Life's fixed income investments were 97.5% 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 June 30, 2010 beyond the impairments
already taken in previous periods.  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 six
months ended June 30, 2010.  During the second quarter of 2009, we recognized an
impairment charge totaling $977,830 on CIT and Alcoa bonds that were
subsequently sold during the third quarter of 2009.



We have one corporate
common stock whose fair value is approximately 34% of book value at June 30,
2010.  This stock is a bank stock that has been in an unrealized loss position
for nine months.  The issuer was hampered by similar market issues as those
encountered by other banks in the recent economy, namely impaired preferred
stock investments and mortgage loan issues.  The issuer has currently suspended
dividend payments, but did recently receive approval to once again begin to pay
preferred stock dividends.  The issuer has generated substantial net income for
2010 year to date as well, to begin to offset prior year losses taken.  Due to
the signs of turnaround in the issuer's financial statements, we have determined
that the impairment is temporary at this time.  We will continue to monitor this
security and the issuer for further negative information that would indicate
that the impairment is other-than-temporary.



During the second quarter
of 2010, we sold our previously impaired $4,000,000 investment in Lehman
Brothers bond holdings, recognizing a gain of $171,105.  This transaction
generated a substantial realized tax loss of approximately $3,096,000.  We have
implemented a sales strategy to take advantage of capital gains within our
current bond portfolio to utilize this tax loss.  This strategy, which has been
executed during the third quarter, in conjunction with carryback provisions will
facilitate the use of this tax loss.  Accordingly, use of the Lehman tax loss
has been considered in the effective income tax rate used in our current period
tax provision.



We continuously monitor the
investment risk within our portfolio, including the risk associated with
subprime lending with our CMO investments.  As of June 30, 2010, we have only
one CMO, with a fair value of approximately $64,000, 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.



23



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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, 2010, 6.3% 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 June 30, 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 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.



During the second quarter
of 2010, we experienced a death covered by one of our company-owned life
insurance policies.  We accrued for the death benefits to be received as of June
30, 2010, recognizing a reduction in our asset for the return of the cash value
of approximately $535,000 and an additional non-taxable death benefit above the
cash value of approximately $901,000.  These funds along with interest were
collected during the third quarter of 2010.



During the second quarter
of 2010, we made our final payment on our previously outstanding bank note.  We
have entered into no new debt agreements during the six months ended June 30,
2010.



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, 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.



24



---





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 $8,512,454 for the second quarter of 2010 (an increase of 3.5%
compared to the second quarter of 2009) and $16,421,226 for the six months ended
June 30, 2010 (an increase of 1.8% compared to the corresponding period in
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
$4,251,553 for the second quarter of 2010 (a decrease of 2.1% compared to the
second quarter of 2009) and $8,515,123 for the six months ended June 30, 2010 (a
decrease of 3.1% compared to the corresponding period in 2009).  The fluctuating
economic environment continues to put significant pressure on new investment
yields.



Net realized gains
(losses) were $504,919 and $577,730 for the three and six month periods ended
June 30, 2010, respectively, compared with ($936,182) and ($866,576) for the
three and six month periods ended June 30, 2009, respectively.  The large gains
realized in 2010 relate to those previously mentioned relating to the sale of
the Lehman bonds coupled with other gains taken to help offset the tax loss
associated with the Lehman bonds.  The loss during 2009 related to
other-than-temporary impairment charges relative to CIT and Alcoa bonds, which
were sold during the third quarter of 2010.  We have not recognized any
other-than-temporary impairment charges during 2010.



Other income was
$1,290,788 for the second quarter of 2010 (an increase of 341% compared to the
second quarter of 2009) and $1,604,338 for the six months ended June 30, 2010
(an increase of 215% compared to the corresponding period in 2009).  The 2010
income includes the company-owned life insurance death benefits associated with
one of our policies, as previously discussed.  Additionally, our revenues
received from our TPA arrangements have 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
$14,559,714 for the second quarter of 2010 (an increase of 22.1% compared to the
second quarter of 2009) and $27,118,417 for the six months ended June 30, 2010
(an increase of 10.5% compared to the corresponding period in 2009).  This
increase is principally driven by the company-owned life insurance death
benefits and the realized gains, as discussed above.



Total benefits and
expenses were $12,868,797 for the second quarter of 2010 (an increase of 1.8%
compared to the second quarter of 2009) and $25,969,205 for the six months ended
June 30, 2010 (an increase of 2.4% compared to the corresponding period in
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.



After providing for
federal income taxes, our net income was $1,302,021 with net income per share of
$1.14 for the second quarter of 2010 as compared to a net loss of $525,607 and a
net loss per share of $0.47 for the second quarter of 2009.  Our net income for
the six months ended June 30, 2010 was $907,877 with net income per share of
$0.79 as compared to a net loss of $587,114 and a net loss per share of $0.52
for the six months ended June 30, 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.



25



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Business Segments

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



Preneed and Burial
Products include both life and annuity products sold by funeral directors or
affiliated agents to fund prearranged funerals. Revenues for this segment were
$10,152,989 for the second quarter of 2010 (an increase of 2.5% compared to the
second quarter of 2009) and $19,667,708 for the six months ended June 30, 2010
(an increase of 0.1% compared to the corresponding period in 2009).  The
increase for the periods was driven by the stronger sales previously mentioned,
which were somewhat offset by lower investment yields.  Pre-tax income (loss)
from operations was ($38,761) and ($532,835) for the three and six month periods
ended June 30, 2010 as compared to $3,070 and ($318,906) for the three and six
month periods ended June 30, 2009.  The current year pre-tax losses were driven
by higher than anticipated claims in this segment along with crediting rate
spread pressure due to lower investment income yields.



Traditional and Universal
Life Products include traditional life and group life insurance products,
certain annuities and universal life products.  Revenues for this segment were
$2,486,000 for the second quarter of 2010 (a decrease of 1.9% compared to the
second quarter of 2009) and $5,021,499 for the six months ended June 30, 2010
(an increase of 0.2% compared to the corresponding period in 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 income (loss) from operations was $79,015 and ($195,437) for the three
and six month periods ended June 30, 2010 as compared to $138,308 and $33,418
for the three and six month periods ended June 30, 2009.  The increase in the
pre-tax loss was primarily attributable to higher than anticipated claims, the
reduction in investment earnings over the comparable period in the prior year
and the current tight credit market.



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 $76,120 for the second
quarter of 2010 (a decrease of 18.1% compared to the second quarter of 2009) and
$135,428 for the six months ended June 30, 2010 (a decrease of 23.5% compared to
the corresponding period in 2009).  Pre-tax income from operations was $43,072
and $79,822 for the three and six month periods ended June 30, 2010 as compared
to $59,771 and $105,935 for the three and six month periods ended June 30,
2009.  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, the impact of realized investment gains and losses, and other
non-recurring revenues.  Revenues for this segment were $1,844,605 and
$2,293,782 for the three and six month periods ended June 30, 2010.  Pre-tax
income from operations was $1,607,591 and $1,797,662 for the three and six month
periods ended June 30, 2010.  These amounts were significantly higher than prior
year amounts due to the current year realized gains taken, company-owned life
insurance proceeds and increase in fees generated from our TPA arrangements, as
previously discussed.  The prior year amounts were also impacted by the
other-than-temporary impairment charge recognized on the CIT and Alcoa bonds.



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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 12% of
Investors Heritage Financial's revenue for the six months ended June 30, 2010
was derived from the sale of Investors Heritage Life's credit insurance
products. During the first six months of 2010, Investors Heritage Capital
received dividends from Investors Heritage Financial totaling $36,000 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.  Investors Heritage Capital also
received dividends from Investors Heritage Life of $188,940 during the first six
months of 2010.  We do not anticipate further dividends from Investors Heritage
Life during 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; the small life insurance company tax deduction; and
non-taxable effects of company-owned life insurance premiums, cash value growth
and death benefit proceeds. Based on the receipt of death benefit proceeds on a
company-owned life insurance policy as well as the implications of the sale of
the Lehman bonds and the associated capital loss carryback, we have revised our
estimate of our expected effective tax rate for 2010 to approximately 21% as of
June 30, 2010.  Accordingly, our effective tax rate was 23.0% and 21.0% for the
three and six month periods ended June 30, 2010 as compared to 27.5% and 27.2%
for the three and six month periods ended June 30, 2009.



OFF-BALANCE SHEET
ARRANGEMENTS



We have no off-balance
sheet arrangements as of June 30, 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 August 13, 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: August 13, 2010
			PresidentBY: /s/Raymond L. CarrRaymond L. CarrDATE: August 13, 2010
			Vice President - Chief Financial Officer






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