EXHIBIT 10.25



                               AMENDMENT NO. 2 TO THE 
                              ARM FINANCIAL GROUP, INC.
                        AMENDED AND RESTATED STOCK OPTION PLAN


         WHEREAS, ARM Financial Group, Inc., a Delaware corporation (the
"Company"), has established the Amended and Restated Stock Option Plan, as
amended (the "Plan"; terms used herein without definition have the meanings
ascribed thereto in the Plan); 

         WHEREAS, Section 13 of the Plan permits the Board of Directors of the
Company to amend the Plan with the consent of the Participant Committee where
such amendment would adversely affect the rights of Participants, PROVIDED that
such amendment shall be uniformly applicable to all Participants;

         WHEREAS, this Amendment No. 2 shall be uniformly applicable to all
Participants;

         WHEREAS, the Company and the Participant Committee desire to amend the
Plan in the manner set forth below;

         NOW, THEREFORE, the Plan is hereby amended as follows:

         1.   The definition of "Applicable Value" in Section 2 of the Plan is
hereby amended in its entirety to read as follows:

         "APPLICABLE VALUE" as of any date of determination means (i) on and
         after the occurrence of a Public Offering, Public Value or (ii) prior
         to the occurrence of a Public Offering, Fair Market Value."

         2.   Notwithstanding anything to the contrary contained in the
definition of "Option Price" contained in Section 2 of the Plan, the Option
Price applicable to all Options outstanding under the Plan shall be fixed upon
the date of the occurrence of a Public Offering at an Option Price calculated as
if such Option Price continued to increase by 3% at the end of each three-month
anniversary of the applicable date of grant through such anniversary occurring
in the last quarter of the fiscal year ending December 31, 1997, PROVIDED that
the Option Price applicable to Options issued pursuant to Section 8(a)(viii)
shall be determined in accordance with such subsection.

         3.   The definition of "Public Company" contained in Section 2 of the
Plan is hereby deleted in its entirety.



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         4.   Section 8(a)(viii) of the Plan is hereby amended in its entirety
to read as follows:

         (viii)  GRANT OF UNALLOCATED OPTIONS.  Upon  (A) the expiration of the
         term of the Plan, (B) a sale of all or substantially all of the
         business of the Company to a Third Party, (C) the occurrence of a
         Change in Control, (D) the occurrence of a Public Offering or (E) the
         triggering of "drag along" or "tag along" rights pursuant to Sections
         2.06 and 2.05 of the Stockholders' Agreement, respectively, (x) all
         unallocated Old Options will be granted PRO RATA to existing
         Participants who hold Old Options and (y) all unallocated New Options
         will be granted PRO RATA to existing Participants who hold New
         Options, with the exercise prices and vesting schedules of such Old
         Options or New Options granted to each Participant being the average
         weighted exercise prices and vesting percentages of the Old Options or
         New Options previously held by such Participant; PROVIDED, HOWEVER,
         that in the case of the triggering of tag along rights, unallocated
         Options shall only be granted to the extent necessary to permit each
         such Participant to sell his Pro Rata Portion (as defined in Section
         2.05(a)(iv) of the Stockholders' Agreement).

         5.   Section 11(c) of the Plan is hereby amended in its entirety to
read as follows:

         (c)  CASHLESS EXERCISES.  Following the occurrence of a Public
         Offering, as determined by the Committee in its sole discretion,
         payment of the Option Price may also be made in full or in part by
         tendering to the Company shares of Common Stock that are already owned
         by the Participant for a period of at least six months (having a Fair
         Market Value as of the date of exercise of such Option equal to the
         Option Price (or such portion thereof)).  In its discretion, in
         accordance with rules and procedures established by the Committee for
         this purpose, the Committee may also permit a Participant to exercise
         an Option through a "cashless exercise" procedure approved by the
         Committee involving a broker or dealer approved by the Committee, that
         affords Participants the opportunity to sell immediately some or all
         of the shares underlying the exercised portion of the Option in order
         to generate sufficient cash to pay the Option Price and/or to satisfy
         withholding tax obligations related to the Option. 



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         6.   Except as set forth herein, the Plan is hereby ratified and
confirmed in all respects.

         IN WITNESS WHEREOF, this Amendment No. 2 has been executed as of this
________ day of May, 1997.

                                  ARM FINANCIAL GROUP, INC.


                                  By: ____________________________
                                       Title:


                                  PARTICIPANT COMMITTEE


                                  By: ____________________________
                                       John Franco


                                  By: ____________________________
                                       Martin H. Ruby