Item 1. Business
(a) Business Overview
Kentucky Investors, Inc. is the 	holder of 100% of the outstanding common stock of a life insurance company, 	a printing company and an insurance marketing company and is the sole member 	of a Kentucky limited liability company.
Kentucky Investors owns 100% of 	Investors Heritage Life Insurance Company, Investors Heritage Printing, Inc. 	and Investors Heritage Financial Services Group, Inc. Kentucky Investors is 	the sole member of At Need Funding, LLC, a Kentucky limited liability 	corporation. We will be referring to Investors Heritage Printing, Investors 	Heritage Financial and At Need Funding as the "Non-insurance Subsidiaries". 	We will be referring to Investors Heritage Life, Investors Heritage 	Printing, Investors Heritage Financial and At Need Funding as the 	"Subsidiaries". We will also be referring to Kentucky Investors and its 	subsidiaries "we", "us", "our" and as the "Company".
Investors Heritage Life owns 96% 	of Investors Underwriters, Inc., an investment holding company. While the 	Non-insurance Subsidiaries continue to expand, approximately 1% of Kentucky 	Investors' total consolidated revenues were generated by the Non-insurance 	Subsidiaries for the year ended December 31, 2006. The Non-insurance 	Subsidiaries' total assets and stockholders' equity comprised less than 1% 	in the aggregate of Kentucky Investors' reported total assets and 	stockholders' equity as of December 31, 2006.
(b) Financial Information 	About Business Segments
Investors Heritage Life
The business segments of 	Investors Heritage Life are identified and discussed on Schedule III, 	Supplementary Insurance Information and on pages 43-44 of the Annual Report 	to Stockholders for the year ended December 31, 2006 and are incorporated 	herein by reference. We offer a portfolio of the standard forms of 	participating and non-participating whole life, limited pay, endowments, 	split-funding, interest-sensitive whole life, guaranteed issue whole life, 	universal life, term and group life. In addition, we write credit life and 	credit accident and health insurance (collectively "Credit Insurance") on a 	group basis. The business of Investors Heritage Life is not seasonal.
Ordinary Production. The 	business segments for ordinary production are Preneed and Burial products ("Preneed") 	and Traditional and Universal Life products ("Traditional"). Ordinary in 	force accounts for 32% of total in force business. We continue to work 	diligently to increase ordinary product sales. Our primary focus over the 	last several years has been the Preneed sales in the final expense and 	preneed funeral markets. Final expense sales include the sale of small face 	amount ordinary life insurance products, the purpose of which is to pay the 	insured's final expenses. Preneed funeral sales include the sale of modal 	multiple premium and single premium ordinary life policies which are sold to 	fund a specific prearranged funeral contract.
Preneed sales decreased 1.4% 	during 2006 primarily due to competition in the marketplace. Investors 	Heritage Life strives to continue to improve its marketing capability in 	this area. Our efforts and strategy to continue a successful ordinary 	insurance operation hinge on continuing to provide solid products and 	outstanding administrative service and on the personal relationships 	developed and fostered each year. In 2003, the Legacy 2000 product series 	was replaced with the Legacy Protector and Legacy Preferred products for 	both the single premium as well as the multi-pay policies. Performance of 	this product series is in line with expectations and has improved product 	profitability in this segment. Our Preneed sales are generated primarily 	through independent funeral homes in fourteen states.
Credit Insurance Products and 	Administrative Services ("Credit Insurance"). Investors Heritage Life 	has sold Credit Insurance since 1966. Since 1996, Investors Heritage 	Financial has marketed Investors Heritage Life's Credit Insurance products. 	All of the risk on Credit Insurance policies sold by Investors Heritage Life 	has been and will continue to be reinsured with larger, highly rated 	companies. Currently, Investors Heritage Life has reinsurance agreements 	with Scottish Re (U.S.), Inc. and RBC Reinsurance (Ireland) Ltd. During 	2005, Investors Heritage Life, with the assistance of Investors Heritage 	Financial, entered into a joint venture partnership with the Kentucky 	Bankers Association ("KBA") to market various products to all of the KBA 	members throughout the Commonwealth of Kentucky. Investors Heritage Life 	reinsures credit business sold through KBA members to, and serves in an 	administrative capacity for, Kenbanc Reinsurance Company, Ltd., the KBA's 	reinsurance company. Investors Heritage Financial markets Investors 	Heritage Life Credit Insurance products and mortgage redemption products 	through this partnership as well as products for several unaffiliated 	companies. These relationships allow Investors Heritage Financial to 	provide more products and better serve our existing accounts thereby 	allowing us to further strengthen these agency relationships.
During 2006, the second year of 	our relationship with the KBA, we were successful in increasing our market 	share through the Kentucky financial institutions. We anticipate sales of 	our Credit Insurance and mortgage redemption products to increase during 	2007 as well as fee income from the sale of other products.
(c) Narrative Description of 	Business
Preneed and Burial Products ("Preneed"). Approximately 	51% of total ordinary insurance in force is Preneed. Sales for this segment 	are under the direct supervision of the home office using a regionally 	supervised agency system. The method of field operation involves independent 	contractual agents working with district and regional managers. These 	managers contract with and train agents who work under them. The regional 	managers may have several district managers under their supervision. As a 	result of our growth in the Preneed area, agency relationships have also 	been entered into directly with numerous funeral home owners. Management 	anticipates this trend to continue and, depending on the size of the funeral 	home and state law, preneed counselors may also become part of the agency 	force.
During the first quarter 2003, we 	introduced the "Legacy Protector and Legacy Preferred Series", our fifth 	generation of life products designed for the preneed funeral market. These 	products provide an underwritten and a guaranteed issue single premium 	policy as well as underwritten and guaranteed issue multi-pay policies. All 	of the products provide for increasing death benefits on a non-guaranteed 	basis with a guaranteed minimum increase and for a lengthened reduced 	benefit period on the guaranteed issue multi-pay product. The performance of 	these products is currently in line with expectations.
We also market a series of final 	expense whole life insurance policies known as the "Heritage Final Expense 	Products". These products are non-participating whole life insurance issued 	with simplified underwriting. These products are offered outside of the 	preneed market and are performing in line with expectations.
Traditional and Universal Life 	Products ("Traditional"). Sales for this segment are under the direct 	supervision of the home office using a regionally supervised agency system. 	The method of field operation involves independent contractual agents 	working with district and regional managers. These managers contract with 	and train agents who work under them. The regional managers may have several 	district managers under their supervision. We also sell business through 	general agents or brokers who may represent one or more companies.
Approximately 49% of total 	ordinary insurance in force is Traditional. These sales are built around a 	standard portfolio of life insurance policies with some of the contributions 	to in-force business being a participating ordinary life insurance policy, a 	guaranteed issue whole life policy and non-participating life policies. In 	addition, we offer term insurance products.
Non-participating life insurance 	policies sold in both the Preneed and the Traditional segments represented 	approximately 93% of the total ordinary insurance in force.
We also provide term insurance 	products, both on a decreasing and a level basis. We will continue to 	provide our decreasing term policy that is primarily sold through financial 	institutions.
As anticipated, ordinary premium 	production from financial institutions increased by $83,815 to $1,393,404 in 	2006. This 6.4% increase over 2005 was primarily due to our increase in 	market share and legislation passed by the Kentucky General Assembly that 	favorably amended the predatory lending law for the state chartered banks in 	Kentucky and that provides a level playing field for state and national 	banks.
Group life accounts for 56% of 	total in-force business. In addition to the group business discussed above, 	Investors Heritage Life participates in the Federal Employee Group Life 	Insurance ("FEGLI") Program, which is administered by Metropolitan Life 	Insurance Company, and in the Servicemen's Group Life Insurance ("SEGLI") 	Program, which is administered by Prudential Insurance Company of America. 	As of year-end 2006, the total amount of insurance in force from the FEGLI 	and SEGLI programs were $475,587,041 and $1,395,612,069, respectively.
Credit Insurance. Credit 	Insurance, which accounts for 12% of total in-force business, is generally 	sold through banks, finance companies and automobile dealerships and is 	offered in connection with the extension of credit by financial 	institutions. The amount of the insurance is designed to cover the amount of 	the loan with the financial institution being the beneficiary of the 	insurance policy to the extent of the unpaid balance of the loan. Credit 	Insurance production is dependent on consumer debt. In times of low 	unemployment, reasonable interest rates and a steadily improving economy, 	consumer debt increases; therefore, Credit Insurance sales increase. When 	the economy slows, consumer debt slows and therefore Credit Insurance sales 	decrease.
Investors Heritage Financial 	initiates discussions with unaffiliated companies regarding a transaction 	where Credit Insurance business would be written by Investors Heritage Life 	and all of the risk insured would be immediately reinsured to the 	unaffiliated company. In addition to receiving an initiation fee, Investors 	Heritage Life also receives a fee for administration and claims processing 	services as part of such transactions. Investors Heritage Financial 	generates revenues in the form of commissions from the sale of Investors 	Heritage Life's Credit Insurance products. Management believes there will 	continue to be opportunities to administer Credit Insurance business in 	Kentucky for non-domestic insurers.
Investors Heritage Life has 	reinsurance agreements with six unaffiliated companies, Life Investors 	Insurance Company of America, Universal Guaranty Life Insurance Company, 	Madison National Life Insurance Company, Minnesota Life Insurance Company, 	Kenbanc Reinsurance Company, Ltd. and Plateau Insurance Company. Pursuant 	to those agreements, our Credit Insurance products sold by each company's 	agents are then reinsured to each company, respectively. Investors Heritage 	Life and Investors Heritage Financial are paid an initiation fee and an 	administration fee for services provided. Investors Heritage Financial will 	continue to seek contracts to operate as an administrator for other 	companies that sell Credit Insurance.
Investors Heritage Financial 	continues to call on banks, finance companies and selected automobile 	dealerships to market Credit Insurance products for Investors Heritage Life. 	As anticipated, 13.6% of Investors Heritage Financial revenues for 2006 were 	derived from the sale of Investors Heritage Life's Credit Insurance 	products. Credit Insurance gross written premiums were lower than 	anticipated in 2006 due primarily to lower loan demand and to the fact that 	the market has not fully adjusted to the favorable amendments to the 	predatory lending law in Kentucky that controls the sale of Credit Insurance 	products in conjunction with lending on real estate and secured loans.
In addition to selling Credit 	Insurance, Investors Heritage Life bank agents may obtain an ordinary life 	license enabling them to sell mortgage life insurance that might be required 	in excess of the statutory credit life limitation enacted by each state 	where our Credit Insurance products are sold. The mortgage life insurance 	sales operations will continue to be conducted through Investors Heritage 	Financial. Further, Investors Heritage Financial is licensed with other 	unaffiliated insurance companies to provide products that Investors Heritage 	Life does not offer to the financial institutions and other agents. These 	products include cancer, accident, second-to-die, large face amount term 	insurance, short term and long term disability and annuities. These 	relationships generated additional fee income in the amount of $294,271 	during 2006 and management anticipates continued fee income from this area.
Reinsurance. Investors 	Heritage Life utilizes a combination of yearly renewable term reinsurance 	and coinsurance to cede life insurance coverage in excess of its retention 	limit, which was $100,000 as of December 31, 2003. Effective January 1, 	2004, the maximum retention level was lowered to $25,000 per life. The new 	retention level was achieved by keeping current reinsurance treaties in 	place and adding additional yearly renewable term treaties for the 	difference with Scottish Re (U.S.) (inforce as of December 31, 2003) and 	Munich American Reassurance Company (business issued in 2004 and later). As 	anticipated, this new retention level has stabilized earnings fluctuations 	in the Traditional segment. Excess coverages are reinsured externally to 	unaffiliated reinsurers.
Investors Heritage Life has a 	reinsurance agreement with Munich, which reinsures the Heritage Final 	Expense products on an 80/20 quota share basis with Investors Heritage Life 	retaining 20% of the risk on each life. We also have a reinsurance agreement 	with Lincoln National Life Insurance Company, which reinsures the Term to 95 	product on an 80/20 quota share basis with Investors Heritage Life retaining 	20% of the risk on each life.
As of December 31, 2006, 	approximately $820,606,000 or 23% of total life insurance in force was 	reinsured with non-affiliated well-established insurance companies. 	Investors Heritage Life is party to reinsurance and coinsurance agreements 	with twenty-two non-affiliated companies. The reinsurers for Investors 	Heritage Life and amounts of insurance in force that are reinsured are as 	follows:
				 Company
Reinsurance
Percent
Amount
Of Total
Canada 				Life Assurance Company
				23,600,000
2.88%
				Connecticut General Life Insurance Company
				760,000
0.09%
				KenBanc Reinsurance Company LTD
				8,961,000
1.09%
Key 				Life Insurance Company
				1,846,000
0.23%
Life 				Investors Insurance Company of America
				15,178,000
1.85%
				Lincoln National Life Insurance Company
				85,000,000
10.36%
				Madison National Life Insurance Company
				5,843,000
0.71%
				Minnesota Life Insurance Company
				87,058,000
10.61%
Munich 				American Reassurance Company
				119,435,000
14.56%
				Optimum Re Insurance Company
				8,978,000
1.09%
				Plateau Insurance Company
				1,053,000
0.13%
RBC 				Reinsurance (Ireland) Ltd.
				131,076,000
15.97%
				ReliaStar Life Insurance Company
				4,519,000
0.55%
				Scottish Annuity and Life Insurance Company
				42,608,000
5.19%
				Scottish RE (US)
				261,477,000
31.86%
Swiss 				Re Life & Health America Inc.
				8,845,000
1.08%
				Universal Guaranty Life Insurance Company
				2,308,000
0.28%
Vernon 				General Insurance Company
				11,725,000
1.43%
Other 				Companies (4)
				 336,000
				 0.04%
				$820,606,000
				100.00%
From July 2001 to July 2003, 	Investors Heritage Life reinsured all of the risk on the Credit Insurance 	products sold by its agents to Munich and Canada Life. Effective July 2003, 	Canada Life exited the Credit Insurance market and Investors Heritage Life 	entered into a reinsurance agreement with RBC Reinsurance. Effective January 	1, 2005, Scottish Re (U.S.), replaced Munich as a reinsurer of our credit 	products. As explained above, some of these credit insurance risks are 	reinsured to Life Investors, Universal Guaranty, Madison National, Minnesota 	Life, Kenbanc and Plateau.
Administrative Services. 	During 2006, we continued marketing and providing third party administrative 	services to non-affiliated life insurance companies. We have the capacity 	within our organization to handle the additional load and we have been 	successful in providing services without the need to add new employees. 	During 2006, we provided third party administrative services for two 	companies. Prior to year-end, one of those companies was sold and the other 	ceased doing business. We have entered into two new third party 	administrative service agreements, which will commence in 2007. One of the 	agreements is with Family Heritage Life Insurance Company, Cleveland, Ohio. 	Family Heritage is an established company opening a new line of life 	insurance products. The second agreement is with Trinity Life Insurance 	Company, Tulsa, Oklahoma. Trinity Life is part of a startup company that 	raised in excess of $14,000,000 and will commence marketing their life 	insurance products within the next ninety days.
We will continue marketing our 	third party administrative services to non-affiliated companies and will be 	hiring a new employee whose primary responsibility will be to promote this 	aspect of our organization. This additional marketing focus is expected to 	generate increased fee income associated with providing these services. Our 	overall revenue will be further enhanced by the fact that we expect to incur 	minimal expense increases associated with the third party administrative 	services, which will decrease our overall unit costs.
Other Subsidiaries. 	Investors Heritage Printing does job printing for Investors Heritage Life as 	well as numerous unaffiliated sources. This includes the printing of the 	application forms and other office forms required by Investors Heritage 	Life. While the income from Investors Heritage Printing is not a significant 	factor in our overall business, Investors Heritage Printing continues to 	work to improve profitability. Revenues from Investors Heritage Printing 	were approximately $440,000 in 2006, up $8,000 compared to 2005.
The formation and operation of 	Investors Heritage Financial generates additional revenue to Kentucky 	Investors. Although this additional revenue is not a significant factor in 	our overall business, Investors Heritage Financial remains steady in its 	operations with revenues of approximately $343,000 in 2006 compared to 	$508,000 in 2005.
At Need Funding is a single 	member, limited liability corporation organized under the laws of the 	Commonwealth of Kentucky. Kentucky Investors is the sole member of the LLC. 	Funding provided by At Need Funding is secured by assignments of verified 	incontestable life insurance policies issued by unaffiliated companies. The 	funds are advanced to funeral homes for services provided for the insured. 	Upon receipt of death benefits from the unaffiliated insurance company, the 	principal balance of the debt is reduced and interest and fees are recorded. 	This service is marketed primarily to funeral homes that do not have the 	manpower to timely complete necessary paperwork to process the insurance 	claim. Revenues from At Need Funding were approximately $273,000 in 2006, 	up $140,000 compared to 2005, primarily due to an enhanced volume of 	activity in the current year.
Dividends and distributions from 	the Non-insurance Subsidiaries for 2006 and 2005 amounted to $427,000 and 	$456,500, respectively.
Additionally, we earn fees for 	other services performed for our subsidiaries. The fees pay for the 	necessary supervision and coordination required to provide a common policy 	for all the companies. The supervision results in a coordination of 	contracts with the various independent agents, common sales brochures, and a 	savings to each company in the area of printing and purchasing. We purchase 	director and officer liability coverage, employment practices liability 	insurance coverage and errors and omissions coverage blanket fidelity 	bonds. All policies provide coverage for each of the subsidiaries and 	provides a cost savings when compared to purchases made by individual 	companies. We also administer the group life and the retirement programs for 	the various companies. These fees are not significant to our total revenue. 	Kentucky Investors also has revenue from other investments, but it is not a 	significant factor in our business.
Employees. Kentucky 	Investors does not have any employees. While Kentucky Investors' officers 	perform various functions, they are not paid a salary by Kentucky Investors 	for performing such functions. The number of persons employed by Investors 	Heritage Life is 86. The number of active independent contractual agents of 	Investors Heritage Life is 2,006. There are no unions organized nor are 	there any collective bargaining agreements with the employees or agents. 	Management of Investors Heritage Life considers its relationship with the 	employees and agents to be satisfactory.
(d) Financial Information 	about Geographic Areas
The principal markets for 	Investors Heritage Life's products are in the Commonwealths of Kentucky and 	Virginia, and the States of North Carolina, South Carolina, Georgia, Ohio, 	Indiana, Mississippi, Tennessee and Michigan. Investors Heritage Life has 	licensed ordinary agents and regional managers throughout these states and 	credit life agents in over 287 banks and automobile dealerships.
Investors Heritage Life is also 	licensed in twenty other states: Alabama, Arizona, Arkansas, Florida, 	Illinois, Louisiana and West Virginia in the South and Southeast; Colorado, 	Missouri, New Mexico, North Dakota, South Dakota, Oklahoma, Montana, 	Nebraska, Kansas, Texas and Utah in the West; and Maryland and Pennsylvania 	in the North. The business in these states is written mostly through general 	agents.
Forward Looking Information. 	We caution readers regarding certain forward-looking statements contained in 	this report and in any other statements made by, or on behalf of, the 	Company, whether or not in future filings with the Securities and Exchange 	Commission (the "SEC"). 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 our products, 	investment spreads and yields, or the earnings and profitability of our 	activities.
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, or on behalf of, the Company. 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 the Company specifically, such as credit, volatility and other risks 	associated with our investment portfolio. We caution that such factors are 	not exclusive. We disclaim any obligation to update forward-looking 	information.
Item 1A.
Item 1A. Risk Factors.
Investing in the securities of 	the Company involves risk. In deciding whether to invest in the securities 	of the Company, you should carefully consider the following risk factors, 	any of which could have a significant or material adverse effect on our 	business, financial condition, operating results or liquidity. This 	information should be considered carefully together with the other 	information contained in this report and the other reports and materials we 	file with the Securities and Exchange Commission.
Mortality. In many cases, 	Investors Heritage Life requires evidence of insurability before issuing 	individual life policies including, in some cases, a medical examination or 	a statement by an attending physician. Home office underwriters review the 	evidence of insurability required and approve the issuance of the policy in 	accordance with the application if the risk is acceptable. Some applicants 	who are substandard risks are rejected, but many are offered policies with 	higher premiums, restricted coverages or reduced benefits during the first 	or second policy years. The majority of the single premium business is 	written through the preneed funeral market without evidence of insurability, 	relying on safeguards such as product design, limits on the amount of 	coverage, and premiums that recognize the resultant higher level of claims. 	To further reduce the risk, one of our single premium products requires 	evidence of insurability utilizing simplified underwriting.
Our operations are also exposed 	to risk of loss from catastrophes. For example, natural or man-made 	disasters or a disease pandemic such as could arrive from the Avian Flu 	could significantly increase our mortality and morbidity experience. 	Policyholders may be unable to meet their obligations to pay premiums on our 	insurance policies.
Reinsurance. Investors 	Heritage Life utilizes numerous reinsurance agreements to cede life 	insurance coverage in excess of our retention limits, which are established 	internally by management. We use reinsurance to help manage our exposure to 	life insurance risks and these agreements provide significant reduction in 	the risk associated with issuing life insurance policies by passing that 	risk on to the reinsurer. Under these reinsurance arrangements, other 	insurers assume a portion of our losses and related expenses; however, we 	remain liable as the direct insurer on all risks reinsured. Consequently, 	ceded reinsurance arrangements do not eliminate our obligation to pay claims 	and we are subject to our reinsurer's credit risk with respect to our 	ability to recover amounts due from them.
In order to reduce this risk, we 	only reinsure our business with highly rated companies or in situations 	where adequate reserves, which are established by us, are placed in trust or 	protected by an irrevocable letter of credit. In addition, we evaluate 	periodically the financial condition of our reinsurers to minimize our 	exposure to significant losses from reinsurer insolvencies. However, our 	reinsurers may become financially unsound or choose to dispute their 	contractional obligations by the time their financial obligations become 	due. The inability or unwillingness of any reinsurer to meet its financial 	obligations to us could negatively affect our consolidated operating 	results. In addition, market conditions beyond our control could determine 	the availability and costs of the reinsurance we are able to purchase. No 	assurances can be made that reinsurance will remain continuously available 	to us to the same extent and on the same terms and rates as are currently 	available. If we were unable to maintain our current level of reinsurance 	or purchase new reinsurance protection in amounts that we consider 	sufficient and at prices that we consider acceptable, we would have to 	either accept an increase in our net liability exposure, reduce the amount 	of business we write, or develop other alternatives to reinsurance. 	Investors Heritage Life has not experienced a reinsurer default under any of 	the reinsurance agreements to which Investors Heritage Life is a party. 	Further, we have no knowledge of and do not anticipate any material default 	in any existing reinsurance obligation.
Regulation of Insurance. 	Our business is subject to extensive laws and regulations and supervision by 	the insurance regulatory authority of each state in which Investors Heritage 	Life is licensed to do business. Such regulators have broad administrative 	powers to, among other things:
grant licenses to companies 		to transact business;
regulate trade practices; 		
approve policy forms;
license agents;
approve certain premium 		rates;
establish minimum reserve and 		loss ratio requirements;
review form and content of 		required financial statements;
prescribe types and amounts 		of investments permitted;
calculate the value of assets 		to determine compliance with statutory requirements;
approve changes in control of 		insurance companies;
restrict the payment of 		dividends and other transactions between affiliates; and
establish statutory capital, 		surplus and reserve requirements, and assure that those requirements are 		met.
Insurance companies can also be 	required under the solvency or guaranty laws of most states in which they do 	business to pay assessments up to prescribed limits to fund policyholder 	losses or liabilities of insolvent insurance companies. They are also 	required to file detailed annual reports with supervisory agencies, and 	records of their business are subject to examination at any time. Under the 	rules of the National Association of Insurance Commissioners ("NAIC"), a 	self-regulatory organization of state insurance commissioners, insurance 	companies are examined periodically by one or more of the regulatory 	authorities.
Domiciled in the Commonwealth of 	Kentucky, Investors Heritage Life is licensed by the Kentucky Department of 	Insurance and is subject to its examination and regulations. The triennial 	audit was last completed during 2004 for the three years ending December 31, 	2003. The Examination Report contained no specific recommendations and no 	material adjustments were made to the statutory financial statements of 	Investors Heritage Life. The next triennial audit will occur during 2007.
The NAIC adopted a "Risk Based 	Capital for Life and/or Health Insurers Model Act" (the "Model Act") which 	was designed to identify inadequately capitalized life and health insurers. 	The Model Act defines two key measures: (i) adjusted capital, which equals 	an insurer's statutory capital and surplus plus its asset valuation reserve, 	plus one-half its liability for policyholder dividends ("Adjusted Capital") 	and (ii) authorized control level risk based capital ("RBC"). RBC is 	determined by a complex formula which is intended to take into account the 	various risks assumed by an insurer. Should an insurer's Adjusted Capital 	fall below certain prescribed levels (defined in terms of its RBC), the 	Model Act provides for various levels of regulatory attention.
Since the Adjusted Capital levels 	of Investors Heritage Life currently exceed all of the regulatory action 	levels as defined by the NAIC's Model Act, the Model Act currently has no 	negative impact on our operations or financial condition.
Statutory restrictions also limit 	the amount of dividends that may be paid by Investors Heritage Life. 	Generally, dividends during any year may not be paid, without prior 	regulatory approval, in excess of the lesser of (a) 10 percent of statutory 	surplus as of the preceding December 31, or (b) statutory net income for the 	preceding year. For 2007, the maximum dividend that Investors Heritage Life 	can pay without regulatory approval is $997,911. Dividends received from 	Investors Heritage Life for 2006 amounted to $728,769.
State insurance regulators and 	the NAIC regularly reexamine existing laws and regulations applicable to 	insurance companies and their products. Changes in all of these laws and 	regulations, or in interpretations thereof, are often made for the benefit 	of the consumer at the expense of the insurer and thus could have a material 	adverse effect on our business, consolidated operating results, financial 	condition and liquidity. Compliance with these laws and regulations is also 	time consuming and personnel-intensive, and changes in these laws and 	regulations may increase materially our direct and indirect compliance costs 	and other expenses of doing business, thus having an adverse effect on our 	business, consolidating operating results, financial condition and 	liquidity.
As a holding company, Kentucky 	Investors is not regulated as an insurance company. However, since Kentucky 	Investors owns all of the capital stock of Investors Heritage Life, it is 	subject to state insurance holding company statutes, as well as certain 	other laws. All holding company statutes, as well as other laws, require 	disclosure and, in some instances, prior approval of material transactions 	between an insurance company and an affiliate. The holding company statutes 	and other laws also require, among other things, prior approval of an 	acquisition of control of a domestic insurer, some transactions between 	affiliates and the payment of extraordinary dividends or distributions.
Changes in Regulation. In 	recent years, the state insurance regulatory framework has come under 	increased federal scrutiny, and some state legislatures have considered or 	enacted laws that may alter or increase state authority to regulate 	insurance companies and insurance holding companies. Congress and some 	federal agencies from time to time investigate the current condition of 	insurance regulation in the United States to determine whether to impose 	federal or national regulation or to allow an optional federal charter, 	similar to the option available to most banks. We cannot predict with 	certainty the effect any proposed or future legislation or NAIC initiatives 	may have on the conduct of our business. Insurance laws or regulations that 	are adopted or amended may be more restrictive than current requirements or 	may result in higher costs. Although the United States federal government 	does not directly regulate the insurance business, changes in federal 	legislation, regulation and/or administrative policies in some areas, 	including changes in financial services regulation and federal taxation, can 	significantly harm the insurance industry, including us.
Competition. The life 	insurance business is highly competitive. With the introduction of universal 	life and other interest sensitive products in recent years, competition with 	other financial institutions has increased. In recent years, there has been 	substantial consolidation and convergence among companies in the insurance 	and financial services industries resulting in increased competition from 	large, well-capitalized insurance and financial services firms that market 	products and services similar to ours. The industry includes both stock and 	mutual companies, including some of the largest financial institutions in 	the United States. While we are responsive to the current economic 	environment, the life insurance market is relatively volatile, and our 	operating results may vary as a result of those conditions. These 	competitors compete with us for producers such as brokers and independent 	agents. Larger competitors may have lower operating costs and an ability to 	absorb greater risks while maintaining their financial strength ratings, 	thereby allowing them to price their products more competitively. Because 	of the competitive nature of the insurance industry, there can be no 	assurance that we will continue to effectively compete with our industry 	rivals, or that competitive pressure will not have a material adverse effect 	on our business, results of operations or financial condition.
We differentiate ourself through 	our marketing techniques, product features, customer service and reputation. 	We maintain our competitive position by our focus on areas which have 	historically proven profitable. Those areas include single premium preneed 	products, multi-pay premium final expense products, traditional whole life 	products, mortgage protection products and level term products. Our 	competitive position is maintained by our ability to provide quality 	customer service throughout the distribution system. Other competitive 	strengths include our asset/liability management system and our quality 	investment portfolio which provides liquidity.
Critical Accounting Policies 	and Estimates. Preparation of our financial statements requires us to 	make estimates and judgments that affect the reported amounts of assets, 	liabilities, revenues and expenses. On a continuing basis, we evaluate our 	estimates, 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. These Risk Factors are discussed in more detail in 	Management's Discussion and Analysis. See "Critical Accounting Policies and 	Estimates" on pages 7-9 of the Annual Report to the Stockholders, which is 	incorporated herein by reference.
In addition to the critical 	accounting policies and estimates, our financial results may also vary due 	to numerous foreseeable and unforeseeable factors and developments including 	general economic conditions, changes in tax laws and changes in interest 	rates. Some of these factors are related to the insurance industry 	generally, such as pricing competition, statutory and regulatory 	developments, industry consolidation and the effects of competition. Others 	are related to the Company specifically, such as credit, volatility and 	other risks associated with our investment portfolio.
Maintaining the Availability 	of Our Systems and Safeguarding the Security of Our Data. We use 	computer systems to store, retrieve, evaluate and utilize customer and 	Company data and information. Our business is highly dependent on our 	ability to access these systems to perform necessary business functions, 	such as providing insurance quotes, processing premium payments, making 	changes to existing policies, filing and paying claims and providing 	customer support. Systems failures or outages could compromise our ability 	to perform these functions in a timely manner, which could harm our ability 	to conduct business and hurt our relationships with our business partners 	and customers. In the event of a disaster, such as a natural catastrophe, 	an industrial accident, a blackout, a computer virus, a terrorist attack or 	war, our systems may be inaccessible to our employees, customers or business 	partners for an extended period of time. Even if our employees are able to 	report to work, they may be unable to perform their duties for an extended 	period of time if our data or systems are disabled or destroyed. Our 	systems could also be subject to physical or electronic break-ins, and 	subject to similar disruptions from unauthorized tampering with our 	systems. This may impede or interrupt our business operations and may have 	a material adverse effect on our business, consolidated operating results, 	financial condition or liquidity.
We have adopted a disaster 	recovery plan, which includes the ability to operate our systems at an 	offsite location with data that is backed-up on a daily basis and stored 	offsite. We test critical aspects of this plan at least annually to ensure 	its adequacy in the event it is needed. We also maintain safeguards to 	protect the privacy and security of our data.
Potential Changes in State or 	Federal Tax Laws. Many of the products that we sell currently benefit 	from one or more forms of tax-favored status under current federal and state 	income tax regimes. For example, we sell life insurance policies which 	benefit from the deferral or elimination of taxation on earnings accrued 	under the policy, as well as permanent exclusion of certain death benefits 	that may be paid to policyholders' beneficiaries. We also sell annuity 	contracts which allow the policyholders to defer the recognition of taxable 	income earned within the contracts. We also benefit from certain tax 	benefits, including but not limited to, tax-exempt bond interest, 	dividends-received deductions, and insurance reserve deductions.
There is a risk that federal 	and/or state tax legislation could be enacted that would lessen or eliminate 	some or all of the tax advantages currently benefiting our policyholders and 	us. The effects of any such changes could result in materially lower 	product sales, lapses of policies currently held, and/or materially higher 	corporate taxes that would be incurred by the Company.
Item 2.
Item 2. Properties
The physical property of the 	Company consists of the home office building and grounds, owned in fee, at 	200 Capital Avenue, Frankfort, Kentucky. Adjacent to the home office, the 	Company owns additional property on Second Street and on Shelby Street in 	Frankfort, Kentucky. One building is used for agency and company meetings; 	one building is a print shop used by Investors Heritage Printing, one 	building is used for supplies and additional storage; one building is leased 	to a commercial tenant and one building is a residential apartment building.
Item 3.
Item 3. Legal Proceedings
There are no legal proceedings to 	which Kentucky Investors is a party. There are no legal proceedings to which 	Investors Heritage Life is a party that are material to the overall 	financial condition or results of operations of Kentucky Investors.
Item 4.
Item 4. Submission of Matters to 	a Vote of Security Holders
None.
PART II
Item 5.
Item 5. Market for Registrant's 	Common Equity, Related Stockholder Matters and Issuer Purchases of Equity 	Securities
(a) The stock of Kentucky 	Investors, Inc. is quoted on the OTC Bulletin Board. The quotations reflect 	inter-dealer prices, without retail mark-up, mark-down, or commission, and 	may not represent actual transactions. The symbol for Kentucky Investors is 	KINV. The following table shows the range of high and low closing sales 	prices of our shares on the OTC Bulletin Board market quotations.
HIGH
LOW
YEAR 				ENDED DECEMBER 31, 2006:
First 				Quarter
$24.00
$23.25
Second 				Quarter
				26.75
				23.40
Third 				Quarter
				26.50
				24.25
Fourth 				Quarter
				29.99
				23.25
YEAR 				ENDED DECEMBER 31, 2005:
First 				Quarter
$28.00
$23.15
Second 				Quarter
				25.50
				23.05
Third 				Quarter
				24.00
				23.20
Fourth 				Quarter
				24.75
				23.50
(b) Approximate Number of Equity 	Security Holders
(A)
Title of Class
Common Stock
(B)
Number of Holders 	of Record 12-31-2006
3,236
(c) Dividends
Kentucky Investors, Inc. paid 	dividends totaling $455,604 to stockholders in 2006, representing $.38 per 	share. The 2006 cash dividend to be paid April 5, 2007, to stockholders of 	record March 23, 2007, is $.38 per share.
(d) Equity Compensation Plan 	Information
Plan Category
Number of securities to be 				issued upon exercise of outstanding options, warrants and rights
Weighted-average exercise price 				of outstanding options, warrants and rights
Number of securities remaining 				available for future issuance under equity compensation plans
Equity compensation plans approved by security 				holders
61,125
$23.00
188,875
Equity compensation plans not approved by 				security holders
-
-
-
Total
61,125
$23.00
188,875
(e) Stock Performance Graph
The following graph compares the 	cumulative 5-year return attained by shareholders on Kentucky Investors, 	Inc.'s common stock relative to the cumulative total returns of the Russell 	2000 index, and a customized peer group of two companies that includes: 	Unumprovident Corp. and Torchmark Corp. Previous Peer Group member Liberty 	Corp/LC was acquired by Raycom Media, Inc. during 2006. The graph tracks 	the performance of a $100 investment in our common stock, in the peer group, 	and the index (with the reinvestment of all dividends) from December 31, 	2001 to December 31, 2006.
Comparison of Five-Year Cumulative Total Return*
KINV
$100.00
$101.65
$117.15
$104.05
$109.08
$136.25
RUSSELL 2000
$100.00
$ 79.52
$117.09
$138.55
$144.86
$171.47
PEER GROUP
$100.00
$ 78.93
$ 86.25
$104.86
$117.84
$121.68
	*$100.00 invested on December 31, 2001 in stock or index-including 	reinvestment of dividends.
	Fiscal year ending December 31.
(Source: Research Data Group. Factual material is obtained from sources 	believed to be reliable, but the publisher is not responsible for any errors 	or omissions contained herein.)
(f) Sales of Unregistered Securities
None.
(g) Purchases of Equity Securities
No share repurchases were made either pursuant to a publicly announced 	plan or program or not pursuant to a publicly announced plan or program.
Item 6.
Item 6. Selected Financial Data
Selected financial data for the past five years appears on page 19 in the 	Annual Report to the Stockholders for the year ended December 31, 2006, and 	is incorporated herein by reference.
Item 7.
Item 7. Management's Discussion and Analysis of Financial Condition and 	Results of Operations
Management's Discussion and Analysis of financial condition and results 	of operations appears on pages 6-19 in the Annual Report to the Stockholders 	for the year ended December 31, 2006, and is incorporated herein by 	reference.
Item 7A.
Item 7A. Quantitative and Qualitative Disclosures about Market Risk
Information appearing under the caption "Market Risk Exposures" appears 	on pages 17-18 in the Annual Report to the Stockholders for the year ended 	December 31, 2006, and is incorporated herein by reference.
Item 8.
Item 8. Financial Statements and Supplementary Data
The financial statements and notes appear on pages 20-46 in the Annual 	Report to the Stockholders for the year ended December 31, 2006 and are 	incorporated herein by reference. See Part IV, Item 15.
Item 9.
Item 9. Changes in and Disagreements with Accountants on Accounting and 	Financial Disclosure
None.
Item 9A.
Item 9A. Controls and Procedures (This report shall not be deemed to be 	filed for purposes of Section 18 of the Exchange Act or otherwise subject to 	the liabilities of that section).
Management is responsible for establishing and maintaining adequate 	internal control over the Company's financial reporting. As of the end of 	the period covered by this annual report, the Company carried out an 	evaluation, under the supervision and with the participation of the 	Company's management, including the Company's Chief Executive Officer and 	Chief Financial Officer, of the effectiveness of the design and operation of 	the Company's internal controls over financial reporting as defined in Rule 	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 the Company's 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 Annual Report on Form 10-K. There have been no significant changes in 	the Company's internal controls or in other factors during our last fiscal 	quarter that have materially affected, or are reasonably likely to 	materially affect, our internal controls over financial reporting. This 	annual report does not include an attestation report of the Company's 	registered public accounting firm regarding internal control over financial 	reporting. Management's report was not subject to attestation by the 	Company's registered public accounting firm pursuant to temporary rules of 	the Securities and Exchange Commission that permit the Company to provide 	only management's report in this annual report.
Item 9B.
Item 9B. Other Information
None.
	 PART III
Item 10.
Item 10. Directors, Executive Officers and Corporate Governance
(a) The Executive officers and directors of the Company are:
Name, Position & Year Became
			Officer/Director
			Family Relationship
Age
			
			
Harry Lee Waterfield II
Chairman of the Board, President/1963
			
			
			
Jimmy R. McIver, Treasurer/2000
			
			
Robert M. Hardy, Jr.
Director, Vice President and General
			
Counsel/1988
			
Nephew of Harry Lee Waterfield II
			
			
			
Raymond L. Carr, Chief Financial
Officer, Vice President/2002
			
			
			
Jane S. Jackson, Secretary/2003
			
			
Helen S. Wagner, Director/1986
			
			
Gordon C. Duke, Director/1991
			
			
Harold G. Doran, Jr. Director/2001
			
			
Howard L. Graham, Director/2002
			
			
Jerry F. Howell, Jr., Director/1983
			
			
David W. Reed, Director/1982
			
			
Michael F. Dudgeon, Jr., Director/2004
			Nephew of Harry Lee 			Waterfield II
(b) Each of the Directors has occupied the position indicated for a 	period of more than five years unless otherwise stated in the information 	regarding the business experience of the Directors who are not officers of 	the Company which is shown on page 3 of the Proxy Statement of the Annual 	Meeting of Shareholders to be held on May 10, 2007, and is incorporated 	herein by reference.
There have been no events under any bankruptcy act, no criminal 	proceedings and no judgments or injunctions material to the evaluation of 	the ability and integrity of any Director or Executive Officer during the 	past five years.
Officers are appointed annually by the Board of Directors at the Board 	meeting immediately following the Annual Meeting of Shareholders. There are 	no arrangements or any understandings between any officer and any other 	person pursuant to which the office was selected.
The Board of Directors has determined that Audit Committee members Harold 	G. Doran, Jr. and Gordon C. Duke are audit committee financial experts as 	defined by Item 407(d)(5) of Regulation S-K of the Exchange Act and are 	independent as that term is used in Item 7(d) of Schedule 14A under the 	Exchange Act. The Company has a designated Audit Committee established in 	accordance with Section 3(a)(58)(A) of the Exchange Act. The members of the 	Audit Committee are Harold G. Doran, Jr., Gordon C. Duke, Jerry F. Howell, 	Jr. and David W. Reed. All members of the Audit Committee are independent.
The Company has adopted a written code of ethics that applies to the 	Company's President and Chief Executive Officer, the Chief Financial Officer 	and all other corporate officers designated by the Chief Executive Officer. 	The Company has posted a copy of the code on the Company's internet website 	at the internet address: http://www.InvestorsHeritage.com. Copies of the 	code may be obtained free of charge from the Company's website at the above 	internet address.
Item 11.
Item 11. Executive Compensation
Information regarding compensation of executive officers and transactions 	with executive officers and directors is shown on pages 7-11 of the Proxy 	Statement for the Annual Meeting of Shareholders to be held May 10, 2007, 	and is incorporated herein by reference.
Item 12.
Item 12. Security Ownership of Certain Beneficial Owners and Management 	and Related Stockholder Matters
Security ownership by Officers, Directors, and management is shown on 	pages 4-5 of the Proxy Statement for the Annual Meeting of Shareholders to 	be held May 10, 2007, and is incorporated herein by reference.
Item 13.
Item 13. Certain Relationships and Related Transactions, and Director 	Independence
Certain relationships and related transactions are shown on page 12 of 	the Proxy Statement for the Annual Meeting of Shareholders to be held May 	10, 2007, and are incorporated herein by reference.
Item 14.
Item 14. Principal Accounting Fees and Services
Information regarding accounting fees and services is shown on page 12 of 	the Proxy Statement for the Annual Meeting of Shareholders to be held May 	10, 2007, and is incorporated herein by reference.
	 PART IV
Item 15.
Item 15. Exhibits, Financial Statement Schedules
(a)1. The following financial statements incorporated herein by reference 	in Item 8 to the Company's Annual Report to Stockholders for the year ended 	December 31, 2006 (pages 20-46) filed as Exhibit 1 thereto:
Report of Independent Registered Public Accounting Firm
Consolidated Balance Sheets as of December 31, 2006 and 2005
For each of the three years in the period ended December 31, 2006:
Consolidated Statements of Income
Consolidated Statements of Stockholders' Equity
Consolidated Statements of Cash Flows
Notes to Consolidated Financial Statements
(a)2. Consolidated Financial Statement Schedules
Schedule I -- Summary of Investments -- Other Than Investments in 	Related Parties
Schedule II -- Condensed Financial Information of Registrant
Schedule III -- Supplementary Insurance Information
Schedule IV -- Reinsurance
All other schedules have been omitted as not applicable, not required, or 	the required information has been included in the financial statements or 	notes thereto.
*The material included in this Report shall not be deemed to be "filed" 	with the Commission or otherwise subject to the liabilities of Section 18 of 	the Act, except to the extent that this registrant specifically incorporates 	it in its Annual Report on this Form 10-K by reference.
	 (b) See Item 15(a)3 above.
(c) Financial Statement Schedules - The response to this portion of 			Item 15 is submitted as a separate section of this report.
	 SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities 	Exchange Act of 1934, the Registrant has duly caused this Form 10-K to be 	signed on its behalf by the undersigned, thereunto duly authorized.
			
KENTUCKY INVESTORS, INC.
			
			
			
			
March 15, 2007
/s/Harry Lee Waterfield II
DATE
BY: Harry Lee Waterfield II
			
ITS: Chairman of the Board and President
Pursuant to the requirements of the Securities Exchange Act of 1934, this 	report is signed below by the following persons on behalf of the Registrant 	and in the capacities and on the dates indicated.
/s/Harry Lee Waterfield II
Harry Lee Waterfield II
Chairman of the Board and President
Principal Executive Officer
March 15, 2007
/s/Robert M. Hardy, Jr.
Robert M. Hardy, Jr.
Vice President, General Counsel and Director
March 15, 2007
/s/Jimmy R. McIver
Jimmy R. McIver
Treasurer
March 15, 2007
/s/Raymond L. Carr
Raymond L. Carr
Chief Financial Officer
Vice President
March 15, 2007
/s/Gordon C. Duke
Gordon C. Duke
Director
March 15, 2007
/s/Helen S. Wagner
Helen S. Wagner
Director
March 15, 2007
/s/Harold G. Doran
Harold G. Doran
Director
March 15, 2007
/s/David W. Reed
David W. Reed
Director
March 15, 2007
/s/Jerry F. Howell, Jr.
Jerry F. Howell, Jr.
Director
March 15, 2007
/s/ Howard L. Graham
Howard L. Graham
Director
March 15, 2007
/s/Michael F. Dudgeon, Jr.
Michael F. Dudgeon, Jr.
Director
March 15, 2007