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                                                                     Exhibit 5.1

                        [SHEARMAN & STERLING LETTERHEAD]

(212) 848-8015

                                June 12, 1998

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-3
(No. 333-53967), as may be amended or supplemented from time to time (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 the following securities
(collectively, the "Securities"): (i) an indeterminate number of shares of the
Company's preferred stock, par value $.01 per share (the "Preferred Stock"), to
be issued from time to time in one or more series and (ii) an indeterminate
number of depositary shares representing fractional interests in shares of the
Preferred Stock (the "Depositary Shares"). The Securities are to be purchased by
certain underwriters and offered for sale to the public (the "Offering") in the
manner set forth in the Prospectus.

            Depositary Shares representing fractional interests in shares of
Preferred Stock will be issued under a preferred stock deposit agreement to be
entered into among the Company, the depositary named therein, and the holders
from time to time of depositary receipts issued thereunder (the "Deposit
Agreement"). The forms of the Deposit Agreement and the Securities are filed or
incorporated by reference as exhibits to the Registration Statement.

            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
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rendering our opinions, we have relied as to factual matters upon certificates
and representations of officers of the Company and certificates of public
officials.

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

            (i) the Deposit Agreement has been duly authorized by the Company;
      and

            (ii) when the shares of Preferred Stock and, if applicable, the
      Depositary Shares have been duly issued and paid for by the purchasers
      thereof in the manner and on the terms described in the Registration
      Statement (after it is declared effective), such shares of Preferred Stock
      will be duly and validly issued, fully paid and nonassessable and, if
      applicable, such Depositary Shares will represent legal and valid
      interests in the corresponding shares of Preferred Stock.

            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 law of the State of
New York and 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
                                              SHEARMAN & STERLING