AMENDMENT NO. 2 TO THE
                              ARM FINANCIAL GROUP, INC.
                     1998 NON-EMPLOYEE DIRECTOR STOCK OPTION PLAN

     WHEREAS, ARM Financial Group, Inc., a Delaware corporation (the "Company"),
has adopted the ARM Financial Group, Inc. 1998 Non-Employee Director Stock
Option Plan (the "Plan"; terms used herein without definition shall have the
meanings ascribed to them as set forth in the Plan);

     WHEREAS, Section 12 of the Plan permits the Board of Directors of the
Company to amend the Plan at any time and from time to time in whole or in part;
and

     WHEREAS, the Board of Directors desires to amend the Plan in the manner set
forth below.

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

     1.   Paragraph (i) under the definition of "CHANGE IN CONTROL OF THE
COMPANY" in Section 2(a) of the Plan is hereby amended in its entirety to read
as follows:

          (i)  any Person (other than the Company, any Subsidiary of the
     Company, any employee benefit plan of the Company or of any Subsidiary of
     the Company, or any person or entity organized, appointed or established by
     the Company or any Subsidiary of the Company for or pursuant to the terms
     of any such plan), alone or together with its Affiliates and Associates
     (collectively, an "ACQUIRING PERSON"), shall become the Beneficial Owner of
     fifty-one percent (51%) or more of the then outstanding shares of Common
     Stock or the Combined Voting Power of the Company; PROVIDED, HOWEVER, that
     for purposes of Options granted under the Plan prior to April 19, 1999, a
     Change in Control of the Company under this Section 2(a)(i) shall have
     occurred when an Acquiring Person shall become the Beneficial Owner of
     twenty percent (20%) or more of the then outstanding shares of Common Stock
     or the Combined Voting Power of the Company;

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



     IN WITNESS WHEREOF, this Amendment No. 2 to the ARM Financial Group, Inc.
1998 Non-Employee Director Stock Option Plan has been executed as of the 19th
day of April, 1999.


                                   ARM FINANCIAL GROUP, INC.


                                   By:    /s/ Martin H. Ruby
                                          ------------------------------------
                                   Name:  Martin H. Ruby
                                   Title: Chairman and Chief Executive Officer

ATTESTED TO:


By:    /s/ Patricia L. Tackett
       -----------------------
Name:  Patricia L. Tackett
Title: Secretary