1 EXHIBIT 8.1 JONES & KELLER [Letterhead] January 31, 1996 Citizens, Inc. Post Office Box 149151 Austin, Texas 78714-9151 Citizens Acquisition, Inc. Post Office Box 149151 Austin, Texas 78714-9151 Insurance Investors & Holding Co. Central Investors Life Insurance Company 2512 North Knoxville Avenue Peoria, Illinois 61604 Gentlemen: Our opinions as expressed below are based solely upon: (1) the information contained in the Registration Statement on Form S-4 as filed with the Securities and Exchange Commission on January __, 1996 (hereafter "Registration Statement"); (2) relevant information provided by the principals and disclosed under the facts section of this letter; (3) the Internal Revenue Code of 1986, as amended (hereinafter "IRC"), the regulations promulgated thereunder, and the current administrative positions of the Internal Revenue Service ("IRS") contained in published Revenue Rulings and Revenue Procedures; and (4) existing judicial decisions. Any or all of the above are subject to change or modification by subsequent legislative, regulatory, administrative or judicial decisions which could adversely affect our opinions. GENERAL QUALIFICATIONS, EXCEPTIONS AND LIMITATIONS: This letter is subject to a number of general qualifications, exceptions and limitations (the "General Qualifications") which are generally accepted in the legal community as consistent with sound legal opinion practice, including the following enumerated General Qualifications, which are or may be material to the opinions expressed in this letter. Definitions: The following definitions apply only to the immediately following, enumerated, General Qualifications and do not apply and are not used elsewhere in this letter. Other capitalized terms used below have the meanings set forth in the Form S-4. Certain Federal statutes are referred to below by their common names or acronyms. "Client" means Citizens, which is a party to the Transaction and for which we are providing legal representation. "Corporate Party" means any one, two or all of Citizens, Investors or Central. "Opinion Recipient" means the addressee or addressees of this letter and other persons who foreseeably may receive or rely on this letter or its contents. "Transaction" means the Merger and Exchange and all other transactions incidental to and in furtherance of the Merger and Exchange. "Transaction Documents" mean the contractual documents setting forth the principal terms of the Transaction addressed by this letter and other contracts ancillary to the Transaction as well as any documents required to be filed with any government regulatory agency in connection with the Transaction. The enumerated General Qualifications, lettered (a) through (h), are as follows: (a) We have relied upon information provided by a Corporate Party, including its directors, officers, employees, and agents, public officials and others, however communicated, including information available on documents, as we have deemed appropriate, without investigation or analysis of underlying data supporting such information, except for such investigation or analysis as may be specifically set forth and described herein. (b) This letter assumes that each document submitted to us for review in conjunction with the preparation of this letter, including the Transaction Documents, is accurate and complete, each such document that is an original is authentic, each such document that is a copy conforms to an authentic original, and all signatures on each such document are genuine. (c) This letter assumes that all parties to the Transaction have full power and authority to enter into and execute the Transaction Documents, that the Transaction Documents are valid and binding obligations of the parties, that there is no failure of condition or breach of the Transaction Documents or any other circumstances which would prevent the Transaction from being consummated, and that the Transaction will be consummated as set forth in the Transaction Documents as presently constituted. (d) This letter assumes that none of the following events shall occur until after the full, complete and permanent consummation of the Transaction: i) the entry of a decree, judgment or order by a court of competent jurisdiction adjudging a Corporate Party as bankrupt or insolvent, or approving a properly filed petition seeking reorganization of a Corporate Party under any bankruptcy or similar law; ii) the entry of a decree or order of a court of competent jurisdiction for the appointment of a receiver, liquidator, trustee or assignee in bankruptcy or insolvency of a Corporate Party or of its property or for the winding up or liquidation of its affairs; iii) the institution by a Corporate Party of proceedings for a voluntary bankruptcy, or consent by a Corporate Party to the filing of a bankruptcy proceeding against it, or consent by a Corporate Party to the filing of any such petition, or the filing by a Corporate Party of a petition or answer or consent seeking reorganization under any bankruptcy or similar law, or the consent by a Corporate Party to the filing of any such petition, or the consent by a Corporate Party to the appointment of a custodian, receiver, liquidator, trustee or assignee in bankruptcy or insolvency of such Corporate Party or any of its assets or property, or a general assignment by a Corporate Party for the benefit of creditors; or iv) the admission by a Corporate Party in writing of its inability to pay its debts generally as they become due, or the insolvency or failure of a Corporate Party generally to pay its debts as they become due. (e) The Opinion Recipient may not rely on the opinions herein for any legal or other analysis beyond that set forth in this letter. (f) The opinions expressed in this letter apply only to the specific legal issues explicitly addressed herein, and such opinions do not address any other matters. This letter is intended to set forth only the expressly stated opinions contained herein, and this letter does not include, nor is it intended to express, any implied opinions. (g) This letter speaks only as of its date. We have no obligation and do not undertake to advise any Opinion Recipient (or any third party) of changes of law or fact that occur after the date of this letter, even though the change may affect the legal analysis, a legal conclusion or an informational confirmation in this letter. (h) This letter applies only to the specific legal issues addressed. In addition, and not by way of limitation, this letter does not address any of the following legal issues (items (i) through (xviii), the "Excluded Issues") except for and to the extent that any of the Excluded Issues are specifically addressed elsewhere in this letter: (i) Federal securities laws and regulations administered by the Securities and Exchange Commission, state "Blue Sky" laws and regulations, and laws and regulations relating to commodity (and other) futures and indices and other similar instruments; (ii) Federal Reserve Board margin regulations; (iii) pension and employee benefit laws and regulations (e.g. ERISA); (iv) Federal and state antitrust and unfair competition laws. (v) Federal and state laws and regulations concerning filing and notice requirements (e.g. Hart-Scott-Rodino and Exon-Florio), other than requirements applicable to charter-related documents such as a certificate of merger; (vi) compliance with fiduciary duty requirements; (vii) Local Law, defined as the statutes and ordinances, the administrative decisions, and the rules and regulations of counties, towns, municipalities and special political subdivisions (whether created or enabled through legislative action at the Federal, state or regional level -- e.g., water agencies, joint power districts, the Maine Turnpike Authority, The Southern California Rapid Transit District, the Port Authority of New York and New Jersey), and judicial decisions to the extent that they deal with any of the foregoing; (viii) the characterization of a Transaction as one involving the creation of a lien on real property or a security interest in personal property, the characterization of a contract as one in a form sufficient to create a lien or a security interest, and the creation, attachment, perfection, priority or enforcement of a lien on real property or a security interest in personal property; (ix) fraudulent transfer and fraudulent conveyance laws; (x) Federal and state environmental laws and regulations; (xi) Federal and state land use and subdivision laws and regulations; (xii) Federal and state tax laws and regulations; (xiii) Federal patent, copyright and trademark, state trademark, and other Federal and state intellectual property laws and regulations; (xiv) Federal and state racketeering laws and regulations (e.g. RICO); (xv) Federal and state health and safety laws and regulations (e.g., OSHA); (xvi) Federal and state labor laws and regulations; (xvii) Federal and state laws, regulations and policies concerning (A) national and local emergency, (B) possible judicial deference to acts of sovereign states, and (C) criminal and civil forfeiture laws; and (xviii) other Federal and State statutes of general application to the extent they provide for criminal prosecution (e.g., mail fraud and wire fraud statutes). "Merger and Exchange" refers to the transactions set forth in the Plan and Agreement of Merger ("Merger Agreement") dated November 28, 1994, as amended on January 25, 1996 between Citizens, Inc. ("Citizens"), Citizens Acquisition, Inc. ("Acquisition"), Insurance Investors & Holding Co. ("Investors") and Central Investors Life Insurance Company of Illinois ("Central"). The words "Merger" and "Exchange," used separately, respectively refer to (i) the Merger of Investors into Acquisition, and (ii) the Exchange of Central Common Stock for Citizens Class A Common Stock. Capitalized terms herein have the same meaning as in the Merger Agreement. Central is a subsidiary of Investors. Acquisition is a subsidiary of Citizens. The Class A Common 1 2 Stock of Investors is herein referred to as "Investors Class A Common Stock"; the Class B Common Stock of Investors is herein referred to as "Investors Class B Common Stock"; and both are sometimes herein referred to as "Investors Stock". Central Common Stock is sometimes herein referred to as "Central Stock". Shareholders residing or conducting business in foreign countries, states or municipalities having tax laws could be required to pay tax with respect to transactions in that country, state or municipality. We do not express any opinion as to foreign, state or local tax consequence. The consequences described in this summary are not applicable to nonresident aliens, to foreign corporations, to debtors under the jurisdiction of a court in a case under Title 11 of the United States Code or in a receivership, foreclosure, or similar proceeding, to investment companies within the meaning of IRC Section 351(e), to shareholders who are dealers in securities, to shareholders who are subject to alternative minimum taxes, to shareholders who do not hold their common stock as capital assets, to shareholders who are financial institutions, or to shareholders who acquired their shares in connection with stock option or stock purchase plans or in other compensatory transactions. The principal reasons for the Merger and the Exchange can be summarized as follows: (1) to create a combined entity with greater financial strength and an enhanced competitive position as compared to the separate entities; (2) to achieve improved capitalization and economies of scale; (3) to consolidate the ownership and operation of the assets of the separate entities into an affiliated group of corporations having greater and more diversified reserves, properties and products; (4) to provide greater liquidity and diversity to Investors and Central shareholders; and (5) to promote more efficient operation of Central by eliminating minority shareholder interests. This letter is conditioned on the continued accuracy of the factual information, assumptions and representations contained in the Registration Statement and the factual information and representations to be made by Citizens, Acquisition, Investors, Central and certain shareholders of Investors and Central, to Jones & Keller P.C., as follows: (1) that Citizens, Investors and Central, in arriving at the method used to determine the number of shares of Citizens Common Stock to be received by each 2 3 Investors and Central shareholder, attempted in good faith to value the Investors Class A Common Stock, Investors Class B Common Stock and Central Common Stock to be transferred and to value the Citizens Common Stock to be exchanged for such Investors Class A Common Stock, Investors Class B Common Stock and Central Common Stock in an effort to ensure that each shareholder receiving Citizens Common Stock pursuant to the Merger and Exchange received a number of shares of such stock approximately equal in value to the Investors Class A Common Stock, Investors Class B Common Stock and Central Common Stock exchanged therefor; (2) that, with respect to any persons who own one percent or more of the value of Investors Stock there is no plan or intention, and to the best of the knowledge of Investors management, there is no plan or intention on the part of remaining shareholders of Investors to sell, exchange or otherwise dispose of Citizens Common Stock received in the Merger which would reduce Investors shareholders ownership of Citizens Common Stock to a number of shares having a value less than 50 percent of the value of all of the formerly outstanding Investors Stock as of the effective date of the Merger, and there is no binding contract or obligation to sell such stock to persons who are not parties to this Merger. For these purposes, shares of Investors Stock exchanged for cash or other property, surrendered by dissenters, or exchanged for cash in lieu of fractional shares of Citizens Stock, will be treated as outstanding Investors Stock on the effective date of the Merger. Moreover, shares of Investors Stock and shares of Citizens Common Stock held by Investors shareholders and otherwise sold, redeemed, or disposed of prior or subsequent to the Merger will be considered; (3) that following the Merger, Investors will hold at least 90 percent of the Fair Market Value of its Net Assets and at least 70 percent of the Fair Market Value of its Gross Assets and at least 90 percent of the Fair Market Value of Acquisition's Net Assets and at least 70 percent of the Fair Market Value of Acquisition's Gross Assets held immediately prior to the Merger. Amounts paid by Investors or Acquisition to dissenters, amounts paid by Investors or Acquisition to shareholders who receive cash or other property, amounts used by Investors or Acquisition to pay reorganization expenses, and all redemptions and distributions (except for regular, normal dividends) made by Investors will be included as assets of Investors or Acquisition, respectively, immediately prior to the Merger; (4) that prior to the Merger, Citizens will be in control of Acquisition within the meaning of IRC Section 368(c); (5) that Investors has no plan or intention to issue additional shares of its stock that would result in Citizens losing control of Investors within the meaning of IRC Section 368(c); 3 4 (6) that Central has no plan or intention to issue additional shares of its stock that would result in Investors losing control of Central within the meaning of IRC Section 368(c); (7) that Citizens has no plan or intention to redeem or otherwise reacquire any Citizens Class A Common Stock to be issued to Investors shareholders in the Merger; (8) that Citizens has no plan or intention to liquidate Investors; to merge Investors with or into another corporation; to sell or otherwise dispose of the stock of Investors except for transfers of stock to corporations controlled by Citizens; or to cause Investors to sell or otherwise dispose of any of its assets or any of the assets acquired from Acquisition, except for dispositions made in the ordinary course of business or transfers of assets to a corporation controlled by Investors; (9) that Investors has no plan or intention to liquidate Central; to merge Central into another corporation; to cause Central to sell or otherwise dispose of any of its assets, except for dispositions made in the ordinary course of business; or to sell or otherwise dispose of any of the Central Stock acquired in the transaction, except for transfers described in Section 368(a)(2)(C) of the Internal Revenue Code; (10) that Acquisition will have no liabilities assumed by Investors, and it will not transfer to Investors any assets subject to liabilities, in the Merger; (11) that neither Investors nor Citizens have any plans or intention to redeem or otherwise reacquire any Citizens Class A Common Stock to be issued to Central shareholders in the Exchange; (12) that following the Merger and Exchange, Investors will continue the historic business of Central or use a significant portion of Central's historic business assets in a business; (13) that Citizens, Acquisition, Investors and Central will assume and pay their respective reorganization expenses, if any, incurred in connection with the Merger and Exchange; (14) that there is no corporate indebtedness between Citizens or Investors or between Acquisition and Investors that was issued, acquired or will be settled at a discount; (15) that in the Merger, shares of Investors Stock representing control of Investors, as defined in IRC Section 368(c), will be exchanged solely for Citizens voting Common Stock. Shares of Investors Stock exchanged for cash or other 4 5 property originating with Citizens will be treated as outstanding Investors Stock on the effective date of the Merger; (16) that on the effective date of the Merger and Exchange, Investors and Central will not have outstanding any warrants, options, convertible securities, or any other type of right pursuant to which any person could acquire stock in Investors or Central that, if exercised or converted, would affect Citizens acquisition or retention of control of Investors or Investors acquisition or retention of control of Central, as defined in IRC Section 368(c); (17) that Citizens does not own, nor has it owned during the past five years, any shares of Investors or Central Stock; (18) that neither Citizens, Acquisition, Investors nor Central are investment companies as defined in IRC Section 368(a)(2)(F)(iii) and (iv); (19) that on the effective date of the Merger, the fair market value of the assets of Investors will equal or exceed the sum of its liabilities, plus the amount of liabilities, if any, to which the assets are subject; (20) that on the effective date of the Exchange, the fair market value of the assets of Central will equal or exceed the sum of its liabilities, plus the amount of liabilities, if any, to which the assets are subject; (21) that neither Citizens, Acquisition, Investors nor Central are under the jurisdiction of a court in a Title 11 or similar case within the meaning of IRC Section 368(a)(3) (A); (22) that the Merger and Exchange will be consummated and qualify as a statutory merger and statutory exchange, respectively, in full compliance with Illinois law; (23) that the Investors Stock and Central Stock to be surrendered by each Investors and Central shareholder will not be subject to any liability and neither Investors nor Citizens will assume liabilities with respect to the surrendered Investors Stock or Central Stock; (24) that in the event more than 2.5 percent of the shareholders of Investors dissent to the Merger, Citizens would exercise its option not to proceed with the Merger (as Citizens is permitted to do under the Merger Agreement) and the Merger consequently is not consummated; (25) that Investors will acquire Central Stock solely in exchange for Citizens Class A Voting Common Stock at a time when Citizens is in control of Investors as defined in IRC Section 368(c). For purposes of this representation, Central Stock redeemed for cash or other property furnished by Investors or Citizens will be considered as acquired by Investors. Further, no liabilities of Central or the Central shareholders will be assumed by Investors, nor will any of the Central Stock be subject to any liabilities; 5 6 (26) that cash payments in lieu of fractional shares are simply a mathematical rounding-off for the purpose of simplifying corporate and accounting problems which would have been caused by the actual issuance of fractional shares, and such payments are not separately bargained for consideration; (27) that there will be no dissenters to the Exchange; and (28) that none of the compensation received by any shareholder of Central will be separate consideration for, or allocable to, any of their shares of Central Stock; none of the shares of Citizens Stock received by any shareholder will be separate consideration for, or allocable to, any employment agreement; and the compensation paid to any shareholder will be for services actually rendered and will be commensurate with amounts paid to third parties bargaining at arm's-length for similar services. In rendering an opinion on the federal income tax consequences of the Merger and the Exchange reasonable steps have been taken to assure that all material tax issues are considered in light of the facts, and that all of such issues involving a reasonable possibility of challenge by the IRS are fully and fairly addressed. A "material tax issue" includes only those tax issues that could have a significant impact (either beneficial or adverse) on any Investors or Central shareholder participating in the Merger or Exchange under circumstances reasonably foreseeable by us. The opinions expressed below are rendered only with respect to the specific matters described herein, and we express no opinion with respect to any other federal income tax aspects of the Merger or Exchange. Should any of the facts, circumstances, or assumptions specified herein be subsequently determined incorrect or inaccurate, our conclusions may vary from those set forth below and such variance could be material. In addition, we do not opine as to the taxable or nontaxable status of any previous transactions not considered by us to be part of the Merger and Exchange transaction. The tax issues that are material to the Merger and the Exchange concern tax consequences to Investors and its shareholders upon the merger of Acquisition into and with Investors in exchange for Citizens Common Stock, and the tax consequences to Central shareholders upon the acquisition of Central Common Stock in exchange for Citizens Common Stock. The Merger of Acquisition into Investors will constitute a reorganization within the meaning of IRC Section 368(a)(1)(A) and IRC Section 368(a)(2)(E) and Citizens, Acquisition, and Investors will each be a "party to a reorganization" within the meaning of IRC Section 368(b), 6 7 The Exchange, whereby Investors will obtain the Central Common Stock from minority shareholders in exchange for Citizens Common Stock, will constitute a reorganization within the meaning of IRC Section 368(a)(1)(B) and Citizens, Investors and Central will each be a "party to a reorganization" within the meaning of IRC Section 368(b). Accordingly, in our opinion, the material tax consequences of the Merger and Exchange are as follows: (1) No gain or loss will be recognized by the shareholders of Investors upon the exchange of their shares of Investors Class A Common Stock and Investors Class B Common Stock for shares of Citizens Common Stock (except for cash received in lieu of a fractional share of Citizens Common Stock) or by the shareholders of Central upon the exchange of shares of Central Common Stock for shares of Citizens Common Stock (except for cash received in lieu of a fractional share of Citizens Common Stock). IRC Section 354(a). (2) The tax basis of the shares of Citizens Common Stock received by a shareholder of Investors and Central (including any fractional share of Citizens Common Stock not actually received) will be the same as the basis of the Investors Stock and Central Stock surrendered by that shareholder in the Merger and Exchange. IRC Section 358(a), IRC Regulation Section 1.358-1(a). (3) The holding period of the shares of Citizens Common Stock received by a shareholder of Investors or Central will include the period during which such shareholder held the Investors Stock or Central Stock exchanged therefor, to the extent that the Investors Stock and Central Stock was held by the shareholder as a capital asset on the date of the consummation of the Merger and Exchange. IRC Section 1223(1). (4) Cash received by the Investors shareholders who properly exercise their dissenters' rights will be treated as having been received in redemption of the shares so cashed out, and may result in taxable gain or loss, measured by the difference (if any) between the amount of cash received and such shareholder's basis in the Investors Stock. Provided the shares were held as capital assets at the time of the redemption, such gain or loss will constitute capital gain or loss, and such gain or loss will be long term capital gain or loss if the holding period for such shares was greater than one year. It is possible, that for some shareholders, the distribution of cash may be treated as a dividend taxable as ordinary income. See IRC Sections 302, 301. (5) Cash payments received by Investors shareholders or Central shareholders in lieu of fractional shares of Citizens Common Stock will be treated as if such fractional share of Citizens Common Stock has been issued in the Merger and Exchange and then redeemed by Citizens. An Investors or Central shareholder receiving such cash will 7 8 recognize gain or loss, upon such payment, measured by the difference (if any) between the amount of cash received and the basis in such fractional share. Provided the fractional share was held as a capital asset at the time of the redemption, such gain or loss will constitute capital gain or loss, and such gain or loss will be long term capital gain or loss if the holding period for such share (taking into account the holding period of the Investors Stock and Central Stock surrendered, as described in (3) above) was greater than one year. It is possible that the distribution of cash may be treated as a dividend taxable as ordinary income if the IRS determines that the distribution in redemption is essentially equivalent to a dividend. See IRC Sections 356, 302. (6) No material gain or loss will be recognized by Investors, Central, Citizens or Acquisition as a result of the Merger or Exchange. IRC Sections 361 and 1032. The adjusted tax basis of Acquisition properties will carryover to Investors. IRC Section 362. (7) Section 382 limits the Net Operating Loss carryover of a company following an ownership change. Investors and Central, as a group, will be deemed to have an ownership change. After an ownership change, the amount of income that a corporation may offset each year by Net Operating Losses that occurred before the change is generally limited to an amount determined by multiplying the value of the equity of the corporation immediately prior to this change by the federal long-term tax exempt rate in effect on the date of the change. Any unused limitation may be carried forward and added to the next year's limitation. To the extent Investors and Central also have built-in losses as defined in IRC Section 382(h) as of the date of the Merger, IRC Section 382 limits the utilization of such losses after the ownership change. IRC Section 383 will similarly limit the utilization of excess credits, net capital losses, and foreign tax credits, if any, after the ownership change. In addition, IRC Section 384 limits the use of preacquisition losses to offset built-in gains, if any, after the ownership change. Proposed regulations under IRC Sections 382 and 1502 implement the above restrictions. (8) Each shareholder of Investors and Central must file pursuant to IRS Regulation 1.368-3(b), with his or her income tax return for the year in which the Merger and Exchange is consummated, a statement which provides details relating to the property transferred, securities received and liabilities, if any, assumed in the exchange. The preceding discussion and opinions are based on our interpretations of the facts and assumptions, based on the IRC, the regulations thereunder and judicial and administrative interpretations thereof. They are subject to change by subsequent regulatory, administrative, legislative, or judicial actions which could have an effect on the validity of our opinions. It should be noted that we do not express an opinion on the valuations of Investors, Central or Citizens assets or stock or the ratio of exchange of Investors Stock or Central Stock for Citizens Common Stock. 8 9 We believe we have addressed all material tax issues in regards to the Merger and Exchange. If the Merger and Exchange is transacted as outlined in the facts given, the material tax issues addressed singularly and in the aggregate will more likely than not be upheld under challenge by the IRS. Each Investors and Central shareholder should consult his own qualified tax advisor to evaluate the tax effects of this exchange based on his personal facts and circumstances. Very truly yours, /s/ JONES & KELLER, P.C. JONES & KELLER, P.C. 9