EXHIBIT 5.1







                                    May ___, 1997



ARM Financial Group, Inc.
515 West Market Street
Louisville, KY  40202

Ladies and Gentlemen:

         We are acting as counsel for ARM Financial Group, Inc., a Delaware
corporation (the "Company"), in connection with the filing by the Company with
the Securities and Exchange Commission of a Registration Statement on Form S-1
(No. 333-14693), as amended (the "Registration Statement"), and the prospectus
contained in the Registration Statement (the "Prospectus"), covering the
registration under the Securities Act of 1933, as amended (the "Securities
Act"), of 5,750,000 shares of the Company's Class A Convertible Common Stock,
par value $.01 per share (the "Class A Common Stock"), to be issued and sold by
the Company, plus up to an additional 862,500 shares of Class A Common Stock to
be sold by certain stockholders of the Company (the "Selling Stockholders") to
cover over-allotments (collectively, together with any additional shares of
Class A Common Stock that may be registered in a registration statement relating
to the Offering filed by the Company pursuant to Rule 462(b) under the
Securities Act, the "Shares").  The Shares are to be purchased by certain
underwriters and offered for sale to the public (the "Offering") in the manner
set forth in the Prospectus.

         In connection with the foregoing, we have examined originals, or
copies certified or otherwise identified to our satisfaction, of such documents
and corporate and public records as we have deemed necessary as a basis for the
opinions hereinafter expressed.  In our examination, we have assumed the
genuineness of all signatures, the authenticity of all documents presented to us
as originals and the conformity to the originals of all documents presented to
us as copies.  In rendering our opinions, we have relied as to factual matters
upon certificates and representations of officers of the Company and
certificates of public officials.



                                          2


         Based upon the foregoing and having regard for such legal
considerations as we deem relevant, we are of the opinion that, upon the
completion of the Recapitalization as described in the Prospectus:

         (i)  the Shares will be duly authorized by the Company;
    
         (ii)      the Shares to be issued and sold by the Company, when issued
              and paid for in the manner and at the price set forth in the
Prospectus, will be validly  issued, fully paid and nonassessable; and 

         (iii)     the Shares that may be sold by the Selling Stockholders will
    be validly issued, fully paid and nonassessable.

         We are members of the Bar of the State of New York and we do not
express any opinion herein concerning any law other than the Delaware General
Corporation Law.

         We hereby consent to the use of this opinion as Exhibit 5.1 to the
Registration Statement and to the use of our name under the caption "Legal
Matters" contained in the Prospectus.  We hereby also consent to the
incorporation by reference of this opinion and consent in a registration
statement, if any, relating to the Offering filed by the Company pursuant to
Rule 462(b) under the Securities Act.  In giving this consent, we do not thereby
concede that we come within the category of persons whose consent is required by
the Securities Act or the General Rules and Regulations promulgated thereunder.


                                       Very truly yours,

                                       /s/ Shearman & Sterling