<PAGE>
                                                                   Exhibit 10.17

                 SEVENTH AMENDED AND RESTATED SECURITY AGREEMENT

         THIS SEVENTH AMENDED AND RESTATED SECURITY AGREEMENT (the "Agreement")
entered into this 31st day of October, 2002, by and between DIRECT GENERAL
FINANCIAL SERVICES, INC., a Tennessee corporation, whose address is 1281
Murfreesboro Road, Nashville, Tennessee 37217 (f/k/a Direct Financial Services,
Inc.) (the "Grantor"), and FIRST TENNESSEE BANK NATIONAL ASSOCIATION, whose
address is 165 Madison Avenue, Memphis, Tennessee 38103, Attention: Metropolitan
Division (the "Agent"), as agent for itself, and for HIBERNIA NATIONAL BANK,
Baton Rouge, Louisiana ("Hibernia"), and for U.S. BANK NATIONAL ASSOCIATION,
St. Louis, Missouri ("U.S. Bank"), and for REGIONS BANK, Birmingham, Alabama
("Regions"), and for CAROLINA FIRST BANK, Greenville, South Carolina ("Carolina
First"), and for BANK ONE, NA (Main Office -- Chicago, Illinois), Baton Rouge,
Louisiana ("Bank One"), pursuant to the Loan Agreement (hereinafter defined).

                               W I T N E S S E T H:

         That for good and valuable considerations, the receipt and sufficiency
of which are hereby acknowledged, the Grantor hereby agrees with Agent as
follows:

         1. Grant of Security Interest. As collateral security for all of the
Obligations (as defined in Section 2 hereof), the Grantor hereby pledges and
assigns to Agent, as agent for itself, Hibernia, U.S. Bank, Regions, Bank One,
and Carolina First (collectively, the "Banks"), and grants to Agent for the
benefit of the Banks a continuing security interest in the following (the
"Collateral"):

                  (a) All of the Grantor's accounts, accounts receivable,
         chattel paper (including tangible chattel paper and electronic chattel
         paper), instruments, and other obligations of any kind, whether or not
         evidenced by an instrument or chattel paper, and whether or not earned
         by performance, including, without limitation, (i) any and all amounts
         owed to the Grantor under any Premium Finance Agreement (hereinafter
         defined) or any instrument or agreement evidencing indebtedness of any
         Policyholder (hereinafter defined) to the Grantor, (ii) all rights,
         powers and privileges of Grantor under or pursuant to all Premium
         Finance Agreements, and (iii) the amount of any unearned premium at any
         time owed to a Policyholder under a cancelled or terminated policy of
         insurance, whether owed by an insurance company, under the Tennessee
         Insurance Guaranty Association Act, under any statute or act of any
         other state providing for the establishment of a guaranty fund for
         payment of amounts owed by insurance companies or otherwise
         (collectively hereinafter "Accounts Receivable" or "Receivables"),
         whether now or hereafter existing, arising out of or in connection with
         the sale or lease of goods or the rendering of services or otherwise,
         and all rights now or hereafter existing in and to all security
         agreements, leases and other contracts securing or otherwise relating
         to any such Accounts Receivable;


<PAGE>

                  (b) All claims for tax refund, whether now existing or
         hereafter arising, of the Grantor against any governmental agency or
         authority or other subdivision thereof, and the proceeds thereof;

                  (c) All of Grantor's contract rights and general intangibles
         ("General Intangibles") of every kind, character and description, both
         now owned and hereafter acquired, including, without limitation,
         goodwill, trademarks, trade styles, trade names, patents, patent
         applications, and deposit accounts;

                  (d) All of Grantor's customer lists, original books and
         records, ledger and account cards, computer tapes, discs and printouts,
         whether now in existence or hereafter created;

                  (e) All proceeds ("Proceeds") of any and all of the foregoing
         Collateral and, to the extent not otherwise included, all moneys due or
         to become due in connection with any of the Collateral, guaranties and
         security for the payment of such moneys;

in each case, whether now owned or hereafter acquired by the Grantor and
howsoever its interest therein may arise or appear (whether by ownership, lease,
security interest, claim, or otherwise).

         For purposes hereof,

                  (i) the term "Policyholder" shall mean an owner of a policy of
         insurance, the premiums on which are financed by Grantor under a
         Premium Finance Agreement or as a result of the Policyholder's purchase
         of insurance on an installment basis; and

                  (ii) the term "Premium Finance Agreement" shall mean an
         agreement, however evidenced, by which a Policyholder agrees to repay
         to Grantor the premium cost on an insurance policy that Grantor becomes
         obligated to pay on behalf of the Policyholders, which repayment is
         made to Grantor at a future date in one or more installments, together
         with a finance charge.

         2. Security for Obligations. The security interest created hereby in
the Collateral constitutes continuing collateral security for all of the
following obligations, whether now existing or hereafter incurred (the
"Obligations"):

         (a) The full and prompt payment, when due, of the indebtedness (and
interest thereon) evidenced and to be evidenced by those certain promissory
notes,

                  (i) of even date herewith, in the principal sum of Thirty
         Million Dollars ($30,000,000.00), executed by Grantor and payable to
         the order of First Tennessee Bank National Association;

                  (ii) of even date herewith, in the principal sum of Fifteen
         Million Dollars ($15,000,000.00), executed by Grantor and payable to
         the order of Hibernia;

                  (iii) of even date herewith, in the principal sum of
         Twenty-Five Million Dollars ($25,000,000.00), executed by Grantor and
         payable to the order of U.S. Bank;


                                       2
<PAGE>

                  (iv) of even date herewith, in the principal sum of Fifteen
         Million Dollars ($15,000,000.00), executed by Grantor and payable to
         the order of Regions;

                  (v) of even date herewith, in the principal sum of Five
         Million Dollars ($5,000,000.00), executed by Grantor and payable to the
         order of Carolina First; and

                  (vi) of even date herewith, in the principal sum of
         Twenty-Five Million Dollars ($25,000,000.00), executed by Grantor and
         payable to the order of Bank One,

together with and any and all renewals, modifications, and extensions of any of
said notes, in whole or in part; and

         (b) The due performance and observance by the Grantor of all of its
covenants, agreements, representations, liabilities, obligations, and
undertakings as set forth herein, or in that certain Eighth Amended and Restated
Loan Agreement (the "Loan Agreement") of even date herewith among Grantor, the
Agent, the Banks and certain Guarantors therein named (as the same may be
modified, renewed or extended from time to time) or in any other instrument or
document which now or at any time hereafter evidences or secures, in whole or in
part, all or any part of the Obligations hereby secured.

         3. Representations and Warranties. The Grantor represents and warrants
as follows:

         (a) The Grantor's chief place of business and chief executive office,
the place where the Grantor keeps its records concerning Accounts Receivable and
all originals of any instruments or chattel paper which constitute Accounts
Receivable and all originals of Premium Finance Agreements, are located at the
address specified for the Grantor in the initial paragraph hereof. As used in
this Agreement, the term "original" includes any relevant document maintained in
electronic format in compliance with applicable law. None of the Accounts
Receivable is evidenced by a Negotiable Instrument [as defined in the Uniform
Commercial Code in effect in the state of Tennessee (the "Code")]. The Grantor
is a corporation organized under the laws of the State of Tennessee, and the
exact legal name of Grantor is set forth in the initial paragraph hereof. The
Grantor's federal tax I.D. number is 62-1564497, and the organizational
identification number assigned to Grantor by its state of incorporation is
0278380.

         (b)      (i) The Grantor owns the Collateral free and clear of any
         lien, security interest or other charge or encumbrance except for the
         security interest created by this Agreement and the junior lien pledged
         to First Tennessee Bank National Association as agent for itself and
         other lenders named therein pursuant to a Second Amended and Restated
         Security Agreement dated as of September 8, 1999, as amended, in
         connection with loans to Direct General Corporation (the "DGC Loan").

                  (ii) Except for the financing statements filed in favor of
         Agent relating to this Agreement and those filed in connection with the
         DGC Loan, no other financing statement or other instrument similar in
         effect covering all or any part of the Collateral is on file in any
         recording office.

         (c) The exercise by Agent of its rights and remedies hereunder will not
contravene any law or governmental regulation or any contractual restriction
binding on or affecting the Grantor




                                       3
<PAGE>

or any of its properties and will not result in or require the creation of any
lien, security interest or other charge or encumbrance upon or with respect to
any of its properties.

         (d) No authorization or approval or other action by, and no notice to
or filing with, any governmental authority or other regulatory body is required
either for the grant by the Grantor of the security interest created hereby in
the Collateral or, except as set forth in Section 3(e) below, for the exercise
by Agent of its rights and remedies hereunder.

         (e) This Agreement creates a valid security interest in favor of the
Agent, for the benefit of the Banks in the Collateral. None of the Premium
Finance Agreements consists of a Negotiable Instrument (as defined in the Code)
and none of the Collateral is otherwise evidenced by a Negotiable Instrument (as
defined in the Code). Each of the Premium Finance Agreements complies in all
material respects with all applicable laws, rules and regulations, including,
but not limited to, the Tennessee Premium Finance Company Act of 1980, all laws
of the state in which the insured resides relating to financing of insurance
premiums or installment sales of insurance, as applicable, and the Federal
Truth-in-Lending Act. Except for Premium Finance Agreements which may have been
executed by individuals who are legally incompetent, each of the Premium Finance
Agreements is the valid, binding and enforceable obligation of the Policyholder
who executed the same. The filing of financing statements with the Tennessee
Secretary of State and, with regard to unearned premiums on cancelled or
terminated policies of insurance, the giving of notice to the insurer (and
related state guaranty fund, a list of which is attached as EXHIBIT "A" hereto,
which Grantor warrants is a complete list of such funds to its best knowledge)
of assignment of such premiums, will perfect and establish the priority of the
security interest of the Agent hereunder in the Collateral for the benefit of
the Banks, subject to no other liens and encumbrances. Except as set forth in
this Section 3(e), no action is necessary or desirable to perfect or otherwise
protect such security interest.

         (f) No financing statement or other instrument similar in effect, other
than such as may be for the benefit of the Agent, is on file in any recording
office in any state in connection with any Premium Finance Agreement.

         4. Covenants. So long as any of the Obligations shall remain
outstanding, unless Agent shall otherwise consent in writing:

         (a) Further Assurances. The Grantor will at its expense, at any time
and from time to time, promptly execute and deliver all further instruments and
documents and take all further action that Agent deems reasonably necessary or
desirable or that Agent may request in order (i) to perfect and protect the
security interest created or purported to be created hereby; (ii) to enable
Agent to exercise and enforce its rights and remedies hereunder in respect of
the Collateral; or (iii) to otherwise effect the purposes of this Agreement,
including, without limitation: (A) executing and filing such financing or
continuation statements, or amendments thereto, as Agent deems necessary or
desirable or that Agent may request in order to perfect and preserve the
security interest created or purported to be created hereby; (B) notifying
insurance carriers of assignment of unearned premiums; (C) furnishing to Agent
from time to time statements and schedules further identifying and describing
the Collateral and such other reports in connection with the Collateral as Agent
may reasonably request, all in reasonable detail; and (D) if any Account
Receivable shall, at any time, be evidenced by a promissory note or other





                                       4
<PAGE>

instrument or chattel paper, delivering and pledging to the Agent hereunder such
note, instrument or chattel paper duly endorsed and accompanied by executed
instruments of transfer or assignment, all in form and substance satisfactory to
the Agent.

         (b) Taxes. The Grantor will pay promptly before delinquent all property
and other taxes, assessments, and governmental charges or levies imposed upon,
and all claims against, the Collateral, except to the extent the validity
thereof is being contested diligently and in good faith by proper proceedings
satisfactory to the Agent.

         (c) As to Receivables and General Intangibles.

                  (i) The Grantor will (A) keep its chief place of business and
         chief executive office and all documents which constitute or create
         Accounts Receivable and General Intangibles including, but not limited
         to, the originals of all Premium Finance Agreements, at the location(s)
         specified in paragraph 3(a) hereof, and (B) maintain and preserve its
         records concerning the Receivables and General Intangibles.

                  (ii) As of the time any Receivable becomes subject to the
         security interest granted by this Security Agreement including, without
         limitation, as of each time any specific assignment or transfer or
         identification is made to Agent of any Receivable, Grantor shall be
         deemed to have warranted as to each and all of such Receivables that
         each Receivable and all papers and documents relating thereto are
         genuine and in all respects what they purport to be; that each Premium
         Finance Agreement and each installment sales obligation is valid and
         subsisting and arises out of a bona fide sale of insurance policies to
         the Policyholder named in the Premium Finance Agreement or obligation
         on the installment sales obligation; that the amount of the Receivable
         represented as owing is the correct amount actually and unconditionally
         owing and, except for Receivables which in the aggregate do not exceed
         One Hundred Thousand Dollars ($100,000.00), and is not disputed and is
         not subject to any setoffs, credits, deductions or counter-charges; and
         that the Grantor is the owner thereof free and clear of all prior
         liens, except for the security interest in favor of Agent, for the
         benefit of the Banks.

                  (iii) Agent shall have the privilege at any time upon its
         request, of inspection during reasonable business hours of any of the
         business properties or premises of the Grantor and the books and
         records of the Grantor relating to said Receivables or the processing
         or collection thereof as well as those relating to its general business
         affairs and financial condition. Agent shall have the right at any
         time, after the occurrence of an Event of Default, to notify any and
         all account debtors to make payment thereof directly to Agent; but to
         the extent Agent does not so elect, Grantor shall continue to collect
         the Receivables. Except as the Agent shall otherwise expressly agree in
         writing, all proceeds of collection of Receivables received by the
         Grantor after the occurrence of an Event of Default shall be forthwith
         accounted for and transmitted to Agent in the form as received by the
         Grantor and shall not be commingled with any funds of the Grantor. In
         the event the account debtor of any Receivable included in this
         Security Agreement shall also be indebted to the Grantor in any other
         respect and such account debtor shall make payment without designating
         the particular indebtedness against which it is to apply, such payment
         shall be conclusively presumed to be payment on the Receivable of such
         account debtor


                                       5
<PAGE>

         included in this Security Agreement. Except to the extent Agent may
         from time to time in its discretion release proceeds to the Grantor for
         use in its business, all proceeds received by Agent shall be applied on
         the Obligations secured hereby, whether or not such Obligations shall
         have by their terms matured, such application to be made at such
         intervals as Agent may determine. Items received after 2:00 p.m. on any
         business day shall be deemed to have been received the following
         business day. In administering the collection of proceeds as herein
         provided for, Agent may accept checks or drafts in any amount and
         bearing any notation without incurring liability to Grantor for so
         doing.

                  (iv) After the occurrence of an Event of Default, Agent shall
         have the right, but shall incur no liability for failing to do so, in
         its own name, or in the name of the Grantor to demand, collect,
         receive, receipt for, sue for, compound and give acquittance for, any
         and all amounts due or to become due on the Receivables, to adjust,
         settle or compromise the amount or payment thereof, in the same manner
         and to the same extent as Grantor might have done, and to endorse the
         name of the Grantor on all commercial paper given in payment or part
         payment thereof, and in its discretion to file any claim or take any
         action or proceedings which Agent may deem necessary or appropriate to
         protect and preserve and realize upon the security interest of Agent in
         the Receivables and the proceeds thereof.

                  (v) Grantor will from time to time execute such further
         instruments and do such further acts and things as Agent may reasonably
         require by way of further assurance to Agent of the matters and things
         herein provided for or intended so to be. Without limiting the
         foregoing, Grantor agrees to execute and deliver to Agent an assignment
         or other form of identification in the form required by Agent of all
         Receivables at any time included under this Security Agreement,
         together with such other evidence of the existence and identity of such
         Receivables as Agent may reasonably require; and Grantor will mark its
         books and records to reflect this Security Agreement. Grantor will
         accompany each transmission of proceeds of Receivables to Agent with a
         report in such form as Agent may require in order to identify the
         Receivables to which such proceeds apply.

         (d) Transfers and Other Liens. Without the prior consent of Agent, the
Grantor will not (i) sell, assign (by operation of law or otherwise), exchange,
or otherwise dispose of any of the Collateral (other than the conversion of
Accounts Receivable to cash in the ordinary course of Grantor's business); or
(ii) create or suffer to exist any lien, security interest or other charge or
encumbrance upon or with respect to any of the Collateral except for the
security interest created by this Agreement.

         (e) Corporate Status. The Grantor will preserve its corporate existence
and will not merge into or consolidate with any other entity, sell all or
substantially all of its assets, change its state of incorporation or change its
corporate name without providing Agent with thirty (30) days' prior written
notice.



                                       6
<PAGE>

         5.  Additional Provisions Concerning the Collateral.

         (a) The Grantor hereby authorizes Agent to file, without the signature
of the Grantor where permitted by law, one or more financing or continuation
statements, and amendments thereto, relating to the Collateral and consistent
with the rights granted in this Agreement.

         (b) The Grantor hereby irrevocably appoints Agent the Grantor's
attorney-in-fact and proxy, with full authority in the place and stead of the
Grantor and in the name of the Grantor or otherwise, from time to time in the
Agent's discretion, after the occurrence of an Event of Default, to take any
action and to execute any instrument which Agent may deem necessary or advisable
to accomplish the purposes of this Agreement, including, without limitation: (i)
to ask, demand, collect, sue for, recover, compound, receive, and give
acquittance and receipts for moneys due and to become due under or in respect of
any of the Collateral; (ii) to receive, endorse, and collect any checks, drafts
or other instruments, documents, and chattel paper in connection with clause (i)
above; (iii) to sign its name on any invoice or bill of lading relating to any
Receivable, on drafts against Policyholders, on schedules and assignments of
Receivables, on notices of assignment, financing statements and other public
records, on verification of accounts and on notices to customers (including
notices directing Policyholders or insurers to make payment direct to Agent);
(iv) to notify the post office authorities to change the address for delivery of
its mail to an address designated by Agent, to receive, open and process all
mail addressed to Grantor, to send requests for verification of Receivables to
customers; (v) to file any claims or take any action or institute any
proceedings which Agent may deem necessary or desirable for the collection of
any of the Collateral or otherwise to enforce the rights of Agent with respect
to any of the Collateral; (vi) to exercise any right, privilege or power which
Grantor is entitled to exercise under or pursuant to any Premium Finance
Agreement; and (vii) to cancel or terminate any policy of insurance upon
nonpayment of any amount owed by a Policyholder under a Premium Finance
Agreement or pursuant to an installment sale arrangement.

         (c) If the Grantor fails to perform any material agreement contained
herein, Agent may itself perform, or cause performance of, such agreement or
obligation, and the costs and expenses of Agent incurred in connection therewith
shall be payable by the Grantor under Section 8 hereof, and shall be fully
secured hereby.

         (d) The powers conferred on Agent hereunder are solely to protect its
interest in the Collateral and shall not impose any duty upon it to exercise any
such powers. Except for the safe custody of any Collateral in its possession and
the accounting for moneys actually received by it hereunder, Agent shall have no
duty as to any Collateral or as to the taking of any necessary steps to preserve
rights against prior parties or any other rights pertaining to any Collateral.

         (e) Anything herein to the contrary notwithstanding, (i) the Grantor
shall remain liable under any contracts and agreements relating to the
Collateral to the extent set forth therein to perform all of its obligations
thereunder to the same extent as if this Agreement had not been executed; (ii)
the exercise by Agent of any of its rights hereunder shall not release the
Grantor from any of its obligations under the contracts and agreements relating
to the Collateral; and (iii) Agent shall not have any obligation or liability by
reason of this Agreement under any contracts and agreements relating to the
Collateral nor any contract of insurance, nor shall Agent be obligated to
perform any of the obligations or duties of the Grantor thereunder or to take
any action to collect or enforce any claim for payment assigned hereunder.





                                       7
<PAGE>

         (f) Any unearned premiums received by Grantor with respect to cancelled
policies of insurance and any amounts received by Grantor from an insurance
guaranty fund shall be held in trust by Grantor for the benefit of Agent and
shall be promptly remitted to Agent.

         6. Remedies Upon Default. As used herein, the term "Event of Default"
shall have the same meaning as set out in the Loan Agreement. If an Event of
Default shall have occurred (and after any applicable notice and cure period):

         (a) Agent may exercise in respect of the Collateral, in addition to
other rights and remedies provided for herein or otherwise available to it, all
the rights and remedies of a secured party on default under the Code (whether or
not the Code applies to the affected Collateral), and also may (i) collect any
amounts due from Policyholders under Premium Finance Agreements or on
installment sales obligations; (ii) collect any unearned premiums due to
Policyholders on cancelled or terminated policies of insurance; (iii) require
the Grantor to, and the Grantor hereby agrees that it will at its expense and
upon request of Agent forthwith, assemble all or part of the Collateral as
directed by Agent and make it available to Agent at a place to be designated by
Agent which is reasonably convenient to Agent; and (iv) without notice except as
specified below, sell the Collateral or any part thereof in one or more parcels
at public or private sale, at any of Agent's offices or elsewhere, for cash, on
credit or for future delivery, and at such price or prices and upon such other
terms as Agent may deem commercially reasonable. The Grantor agrees that, to the
extent notice of sale shall be required by law, at least ten (10) days' notice
to the Grantor of the time and place of any public sale or the time after which
any private sale is to be made shall constitute reasonable notification. Agent
shall not be obligated to make any sale of Collateral regardless of notice of
sale having been given. Agent may adjourn any public or private sale from time
to time by announcement at the time and place fixed therefor, and such sale may,
without further notice, be made at the time and place to which it was so
adjourned.

         (b) Any cash held by Agent or any Bank as Collateral and all cash
proceeds received by Agent or any Bank in respect of any sale of, collection
from, or other realization upon, all or any part of the Collateral shall be
applied as follows:

                  (i) First, to the repayment of the reasonable costs and
         expenses, including reasonable attorneys' fees and legal expenses,
         incurred by Agent in connection with (A) the administration of this
         Agreement, (B) the retaking, custody, preservation, use, or operation
         of, or the sale of, collection from, or other realization upon, any
         Collateral, (C) the exercise or enforcement of any of the rights of
         Agent hereunder, or (D) the failure of the Grantor to perform or
         observe any of the provisions hereof or of the Loan Agreement;

                  (ii) Second, to the reimbursement of Agent for the amount of
         any obligations of the Grantor paid or discharged by Agent pursuant to
         the provisions of this Agreement, and of any expenses of Agent payable
         by the Grantor hereunder;

                  (iii) Third, to the satisfaction of the Obligations, in the
         manner specified in the Loan Agreement;



                                       8
<PAGE>

                  (iv) Fourth, to the payment of any other amounts required by
         applicable law [including, without limitation, Section
         47-9-608(a)(1)(C) or 47-9-615(a)(3) of the Code or any successor or
         similar, applicable statutory provision]; and

                  (v) Fifth, the surplus proceeds, if any, to the Grantor or to
         whomsoever shall be lawfully entitled to receive the same or as a court
         of competent jurisdiction shall direct.

         (c) In the event that the proceeds of any such sale, collection or
realization are insufficient to pay all amounts to which the Banks are legally
entitled, the Grantor shall be liable for the deficiency, together with interest
thereon at such rate(s) as shall be fixed by instrument(s) evidencing the
Obligation(s) with respect to which such deficiency exists, together with the
costs of collection and the reasonable fees of any attorneys employed by any
Bank to collect such deficiency.

         7. Rights and Duties of Agent, Etc. Agent undertakes, as to this
Agreement, to exercise only such duties as are specifically set forth in this
Agreement and to exercise such of the rights, powers and remedies as are vested
in it by this Agreement or by law. Agent may consult with counsel, and the
written advice or opinion of such counsel shall be full and complete
authorization and protection in respect of any action taken, suffered or omitted
by it hereunder in good faith and in reliance thereon.

         8. Indemnity and Expenses. (a) The Grantor agrees to indemnify Agent
from and against any and all claims, losses, and liabilities growing out of or
resulting from this Agreement (including, without limitation, enforcement of
this Agreement), except claims, losses, or liabilities resulting solely and
directly from Agent's negligence or willful misconduct.

         (b) The Grantor will upon demand pay to Agent the amount of any and all
costs and expenses, including the reasonable fees and disbursements of the
Agent's counsel and of any experts and agents, which Agent may incur in
connection with (i) the administration of this Agreement (excluding the salary
of Agent's employees and Agent's normal and usual overhead expenses); (ii) the
custody, preservation, use, or operation of, or the sale of, collection from, or
other realization upon, any Collateral; (iii) the exercise or enforcement of any
of the rights of Agent hereunder; or (iv) the failure by the Grantor to perform
or observe any of the provisions hereof, except expenses resulting solely and
directly from Agent's negligence or willful misconduct.

         9. Notices, Etc. All notices and other communications provided for
hereunder (except for routine informational communications) shall be in writing
and shall be mailed (by registered or certified mail, return receipt requested,
except for routine informational communications) or delivered by nationally
recognized express courier service, marked for next day delivery, if to the
Grantor, to it at its address specified in the first paragraph of this
Agreement; with a copy (if other than a routine informational communication) to
Wyatt, Tarrant & Combs, LLP, 2525 End Avenue, Suite 1500, Nashville, Tennessee
37203, Attention: Tony Saunders; and if to the Agent, to it Attention:
Metropolitan Division, at its address specified in the first paragraph of this
Agreement, with a copy (if other than a routine informational communication) to
Baker, Donelson, Bearman & Caldwell, 2000 First Tennessee Building, Memphis,
Tennessee 38103, Attention: Commercial Lending and Real Estate Group. All such
notices and other




                                       9
<PAGE>

communications shall be effective (i) if mailed, when received or three (3) days
after mailing, whichever is earlier; (ii) if delivered by express courier
service, on the day marked for delivery.

         10. Security Interest Absolute. All rights of Agent, all security
interests and all obligations of the Grantor hereunder shall be absolute and
unconditional irrespective of: (i) any lack of validity or enforceability of the
Loan Agreement, any guaranty, or any other agreement or instrument relating
thereto; (ii) any change in the time, manner, or place of payment of, or in any
other term in respect of, all or any of the Obligations, or any other amendment
or waiver of or consent to any departure from this Agreement, any guaranty, or
any other agreement or instrument relating thereto; (iii) any increase in,
addition to, or exchange, release, or non-perfection of, any other collateral,
or any release or amendment or waiver of or consent to departure from any
guaranty, for all or any of the Obligations; (iv) any other circumstance which
might otherwise constitute a defense available to, or a discharge of, the
Grantor in respect of the Obligations or this Agreement; or (v) the absence of
any action on the part of Agent to obtain payment or performance of the
Obligations from the Grantor or any other party.

         11. Miscellaneous. (a) This Seventh Amended and Restated Security
Agreement replaces that certain Sixth Amended and Restated Security Agreement
dated September 18, 2001, that certain Fifth Amended and Restated Security
Agreement dated September 8, 1999, that certain Fourth Amended and Restated
Security Agreement dated July 31, 1998, that certain Third Amended and Restated
Security Agreement dated August 29, 1996, that certain Second Amended and
Restated Security Agreement dated February 15, 1996, that certain First Amended
and Restated Security Agreement dated June 26, 1995, and that certain Security
Agreement dated December 2, 1994, as each may have been amended from time to
time. No amendment of any provision of this Agreement shall be effective unless
it is in writing and signed by the Grantor and Banks, and no waiver of any
provision of this Agreement, and no consent to any departure by the Grantor
therefrom, shall be effective unless it is in writing and signed by Agent, and
then such waiver or consent shall be effective only in the specific instance and
for the specific purpose for which given.

         (b) No failure on the part of Agent to exercise, and no delay in
exercising, any right hereunder or under any other instrument or document shall
operate as a waiver thereof; nor shall any single or partial exercise of any
such right preclude any other or further exercise thereof or the exercise of any
other right. The rights and remedies of Agent provided herein and in the other
instruments and documents are cumulative and are in addition to, and not
exclusive of, any rights or remedies provided by law. The rights of Agent under
the Loan Agreement, any guaranty, any other instrument which now or hereafter
evidences or secures all or part of the Obligations, or any related document
against any party thereto are not conditional or contingent on any attempt by
Agent to exercise any of its rights under any other such instrument or document
against such party or against any other party.

         (c) Any provision of this Agreement which is prohibited or
unenforceable in any jurisdiction shall, as to such jurisdiction, be ineffective
to the extent of such prohibition or invalidity without invalidating the
remaining portions hereof or thereof or affecting the validity or enforceability
of such provision in any other jurisdiction.



                                       10
<PAGE>

         (d) This Agreement shall create a continuing security interest in the
Collateral and shall (i) remain in full force and effect until the payment in
full of all of the Obligations, (ii) be binding on the Grantor and its
successors and permitted assigns and shall inure, together with all rights and
remedies of Agent hereunder, to the benefit of Agent, as agent for itself and
the other Banks and their respective successors, transferees, and assigns. None
of the rights or obligations of the Grantor hereunder may be assigned or
otherwise transferred without the prior written consent of the Banks.

         (e) Upon the satisfaction in full of all of the Obligations, Agent
will, upon the Grantor's request and at the Grantor's expense, (i) return to the
Grantor such of the Collateral as shall not have been sold or otherwise disposed
of or applied pursuant to the terms hereof; and (ii) execute and deliver to the
Grantor such documents as the Grantor shall reasonably request to evidence
termination of the security interest herein granted.

         (f) This Agreement shall be governed by and construed in accordance
with the statutes and laws of the State of Tennessee, except as required by
mandatory provisions of law and except to the extent that the validity or
perfection of the security interest created hereby, or remedies hereunder, in
respect of any particular Collateral are governed by the laws of a jurisdiction
other than the State of Tennessee. If any provision hereof is in conflict with
the provisions of the Loan Agreement, the provisions of the Loan Agreement shall
control.

         IN WITNESS WHEREOF, the Grantor has caused this Agreement to be
executed and delivered by its duly authorized officers on this the day and year
first above written.

                                       DIRECT GENERAL FINANCIAL SERVICES, INC.


                                       By: /s/ Barry D. Elkins
                                           -----------------------------------

                                       Title: Senior Vice President & Chief
                                              Financial Officer
                                              --------------------------------


                                                                         GRANTOR



                                       11
<PAGE>
                                 FIRST AMENDMENT
                                       TO
                 SEVENTH AMENDED AND RESTATED SECURITY AGREEMENT

         THIS FIRST AMENDMENT TO SEVENTH AMENDED AND RESTATED SECURITY AGREEMENT
(the "Amendment") made and entered into as of the 31st day of March, 2003, by
and between DIRECT GENERAL FINANCIAL SERVICES, INC., a Tennessee corporation
whose address is 1281 Murfreesboro Road, Nashville, Tennessee 37217 (f/k/a
Direct Financial Services, Inc.) ("Grantor"), and FIRST TENNESSEE BANK NATIONAL
ASSOCIATION, whose address is 165 Madison Avenue, Memphis, Tennessee 38103,
Attention: Metropolitan Division (in its agency capacity being herein referred
to as "Agent," and in its individual capacity as "FTBNA"), as agent for itself,
and for HIBERNIA NATIONAL BANK, Baton Rouge, Louisiana ("Hibernia"), and for
U.S. BANK NATIONAL ASSOCIATION, St. Louis, Missouri ("U.S. Bank"), and for
REGIONS BANK, Birmingham, Alabama ("Regions"), and for CAROLINA FIRST BANK,
Greenville, South Carolina ("Carolina First"), and for BANK ONE, NA (Main Office
-- Chicago, Illinois), Baton Rouge, Louisiana ("Bank One") (Agent, Hibernia,
U.S. Bank, Regions, Carolina First and Bank One collectively, the "Banks," and
individually, a "Bank"), pursuant to the Eighth Amended and Restated Loan
Agreement dated as of October 31, 2002, as amended (the "Loan Agreement") among
Grantor, Banks and the other parties named therein.

                                Recitals of Fact

         Pursuant to that certain Seventh Amended and Restated Security
Agreement dated as of October 31, 2002 (the "Security Agreement") between the
parties hereto, Grantor assigned and pledged Receivables (as defined in the Loan
Agreement) and other contractual rights to the Agent for the benefit of the
Banks as collateral security for all of the Obligations (as defined in the
Security Agreement) of Grantor to the Banks.

         The Grantor and the Banks now desire to modify certain terms of the
Security Agreement as hereinafter set forth.

         NOW, THEREFORE, in consideration of the premises as set forth in the
Recitals of Fact, the mutual covenants and agreements hereinafter set out, and
other good and valuable consideration, the receipt and sufficiency of which are
hereby acknowledged, it is agreed by the parties as follows:

                                   Agreements

         1. All capitalized terms used and not defined herein shall have the
meaning ascribed to them in the Loan Agreement.

         2. To induce the Banks to enter into this Amendment, the Grantor does
hereby absolutely and unconditionally, certify, represent and warrant to the
Banks, and covenants and agrees with the Banks, that:




<PAGE>

                  (a) All representations and warranties made by the Grantor in
         the Loan Agreement, as amended, in the Security Agreement, and in all
         other loan documents (all of which are herein sometimes called the
         "Loan Documents"), are true, correct and complete in all material
         respects as of the date of this Amendment.

                  (b) As of the date hereof and with the execution of this
         Amendment, there are no existing events, circumstances or conditions
         which constitute, or would, with the giving of notice, lapse of time,
         or both, constitute Events of Default.

                  (c) There are no existing offsets, defenses or counterclaims
         to the obligations of the Grantor, as set forth in the Notes, the
         Security Agreement, the Loan Agreement, or in any other Loan Document
         executed by the Grantor, in connection with the Loan.

                  (d) The Grantor does not have any existing claim for damages
         against the Banks arising out of or related to the Loan; and, if and to
         the extent (if any) that the Grantor has or may have any such existing
         claim (whether known or unknown), the Grantor does hereby forever
         release and discharge, in all respects, the Banks with respect to such
         claim.

                  (e) The Loan Documents, as amended by this Amendment, are
         valid, genuine, enforceable in accordance with their respective terms,
         and in full force and effect.

         3. Section 2(a)(iv) of the Security Agreement, is hereby deleted in its
entirety and the following is inserted in lieu thereof:

                  (iv) of even date herewith, in the principal sum of
         Twenty-Five Million Dollars ($25,000,000.00), executed by Grantor and
         payable to the order of Regions;

         4. Section 3(b)(i) of the Security Agreement, is hereby deleted in its
entirety and the following is inserted in lieu thereof:

                  (i) The Grantor owns the Collateral free and clear of any
         lien, security interest or other charge or encumbrance except for the
         security interest created by this Agreement and the junior lien pledged
         to First Tennessee Bank National Association as agent for itself and
         other lenders named therein pursuant to a Third Amended and Restated
         Security Agreement dated as of October 31, 2002, as amended, in
         connection with loans to Direct General Corporation (the "DGC Loan").

         5. All terms and provisions of the Security Agreement, as heretofore
amended, which are inconsistent with the provisions of this Amendment are hereby
modified and amended to conform hereto; and, as so modified and amended, the
Security Agreement is hereby ratified, approved and confirmed. Except as
otherwise may be expressly provided herein, this Amendment shall become
effective as of the date set forth in the initial paragraph hereof.



                                       2
<PAGE>

         6. All references in all Loan Documents (including, but not limited to,
the Notes, the Security Agreement, and the Loan Agreement) to the "Security
Agreement" shall, except as the context may otherwise require, be deemed to
constitute references to the Security Agreement as amended hereby.


                        [SEPARATE SIGNATURE PAGES FOLLOW]

















                                       3
<PAGE>
                                 SIGNATURE PAGE
                                       TO
       FIRST AMENDMENT TO SEVENTH AMENDED AND RESTATED SECURITY AGREEMENT

================================================================================


         IN WITNESS WHEREOF, the Grantor, the Banks and the Agent have caused
this Agreement to be executed by their duly authorized officers, all as of the
day and year first above written.

                                       GRANTOR:

                                       DIRECT GENERAL FINANCIAL SERVICES,
                                       INC., a Tennessee corporation

                                       By: /s/ Barry D. Elkins
                                           -------------------------------------
                                       Title: Senior Vice President & Chief
                                              Financial Officer
                                              ----------------------------------



                                       BANKS:

                                       FIRST TENNESSEE BANK NATIONAL ASSOCIATION

                                       By: /s/ Sam Jenkins
                                           -------------------------------------
                                       Title:  Senior Vice President
                                              ----------------------------------

                                       HIBERNIA NATIONAL BANK

                                       By: /s/ Janet Olson Rack
                                           -------------------------------------
                                       Title:  Senior Vice President
                                              ----------------------------------

                                       U.S. BANK NATIONAL ASSOCIATION

                                       By: /s/ Russell S. Rogers
                                           -------------------------------------
                                       Title:  Vice President
                                              ----------------------------------

                                       CAROLINA FIRST BANK

                                       By: /s/ Charles Chamberlin
                                           -------------------------------------
                                       Title:  Executive Vice President
                                              ----------------------------------



                           [SIGNATURE PAGE CONTINUED]



                                       S-1
<PAGE>

                                       BANK ONE, NA
                                       (MAIN OFFICE - CHICAGO, ILLINOIS)

                                       By: /s/ Robert D. Bond
                                           -------------------------------------
                                       Title:  Vice President
                                              ----------------------------------

                                       REGIONS BANK

                                       By: /s/ Sam Prudhomme
                                           -------------------------------------
                                       Title:  Assistant Vice President
                                              ----------------------------------

                                       AGENT:

                                       FIRST TENNESSEE BANK NATIONAL ASSOCIATION

                                       By: /s/ Sam Jenkins
                                           -------------------------------------
                                       Title:  Senior Vice President
                                              ----------------------------------





                                      S-2
<PAGE>

                                SECOND AMENDMENT
                                       TO
                 SEVENTH AMENDED AND RESTATED SECURITY AGREEMENT

         THIS SECOND AMENDMENT TO SEVENTH AMENDED AND RESTATED SECURITY
AGREEMENT (the "Amendment") made and entered into as of the 28th day of May,
2003, by and between DIRECT GENERAL FINANCIAL SERVICES, INC., a Tennessee
corporation whose address is 1281 Murfreesboro Road, Nashville, Tennessee 37217
(f/k/a Direct Financial Services, Inc.) ("Grantor"), and FIRST TENNESSEE BANK
NATIONAL ASSOCIATION, whose address is 165 Madison Avenue, Memphis, Tennessee
38103, Attention: Metropolitan Division (in its agency capacity being herein
referred to as "Agent," and in its individual capacity as "FTBNA"), as agent for
itself, and for HIBERNIA NATIONAL BANK, Baton Rouge, Louisiana ("Hibernia"), and
for U. S. BANK NATIONAL ASSOCIATION, St. Louis, Missouri ("U. S. Bank"), and for
REGIONS BANK, Birmingham, Alabama ("Regions"), and for CAROLINA FIRST BANK,
Greenville, South Carolina ("Carolina First"), and for BANK ONE, NA (Main Office
-- Chicago, Illinois), Baton Rouge, Louisiana ("Bank One"), and for NATIONAL
CITY BANK OF KENTUCKY, Louisville, Kentucky ("National City Bank") (Agent,
Hibernia, U. S. Bank, Regions, Carolina First and Bank One collectively, the
"Original Banks") (the Original Banks and National City Bank collectively, the
"Banks," and individually, a "Bank"), pursuant to the Eighth Amended and
Restated Loan Agreement dated as of October 31, 2002, as amended (the "Loan
Agreement") among Grantor, Banks and the other parties named therein.

                                Recitals of Fact

         Pursuant to that certain Seventh Amended and Restated Security
Agreement dated as of October 31, 2002, as amended by that certain First
Amendment to Seventh Amended and Restated Security Agreement dated as of March
31, 2003 (the "Security Agreement") between Grantor and the Original Banks,
Grantor assigned and pledged Receivables (as defined in the Loan Agreement) and
other contractual rights to the Agent for the benefit of the Original Banks as
collateral security for all of the Obligations (as defined in the Security
Agreement) of Grantor to the Original Banks.

         The Grantor and the Banks now desire to modify certain terms of the
Security Agreement as hereinafter set forth.

         NOW, THEREFORE, in consideration of the premises as set forth in the
Recitals of Fact, the mutual covenants and agreements hereinafter set out, and
other good and valuable consideration, the receipt and sufficiency of which are
hereby acknowledged, it is agreed by the parties as follows:

                                   Agreements

         1.       All capitalized terms used and not defined herein shall have
the meaning ascribed to them in the Loan Agreement.


<PAGE>

         2.       To induce the Banks to enter into this Amendment, the Grantor
does hereby absolutely and unconditionally, certify, represent and warrant to
the Banks, and covenants and agrees with the Banks, that:

                  (a)      All representations and warranties made by the
         Grantor in the Loan Agreement, as amended, in the Security Agreement,
         and in all other loan documents (all of which are herein sometimes
         called the "Loan Documents"), are true, correct and complete in all
         material respects as of the date of this Amendment.

                  (b)      As of the date hereof and with the execution of this
         Amendment, there are no existing events, circumstances or conditions
         which constitute, or would, with the giving of notice, lapse of time,
         or both, constitute Events of Default.

                  (c)      There are no existing offsets, defenses or
         counterclaims to the obligations of the Grantor, as set forth in the
         Notes, the Security Agreement, the Loan Agreement, as amended, or in
         any other Loan Document executed by the Grantor, in connection with the
         Loan.

                  (d)      The Grantor does not have any existing claim for
         damages against the Banks arising out of or related to the Loan; and,
         if and to the extent (if any) that the Grantor has or may have any such
         existing claim (whether known or unknown), the Grantor does hereby
         forever release and discharge, in all respects, the Banks with respect
         to such claim.

                  (e)      The Loan Documents, as amended by this Amendment, are
         valid, genuine, enforceable in accordance with their respective terms,
         and in full force and effect.

         3.       National City Bank is hereby added as a Bank to the Security
Agreement.

         4.       The first paragraph of Section 1 of the Security Agreement, is
hereby deleted in its entirety and the following is inserted in lieu thereof:

                  1.       Grant of Security Interest. As collateral security
         for all of the Obligations (as defined in Section 2 hereof), the
         Grantor hereby pledges and assigns to Agent, as agent for itself,
         Hibernia, U. S. Bank, Regions, Bank One, National City Bank and
         Carolina First (collectively, the "Banks"), and grants to Agent for the
         benefit of the Banks a continuing security interest in the following
         (the "Collateral"):

         5.       Section 2(a) of the Security Agreement, is hereby deleted in
its entirety and the following is inserted in lieu thereof:

                  (a)      The full and prompt payment, when due, of the
         indebtedness (and interest thereon) evidenced and to be evidenced by
         those certain promissory notes,

                           (i)      dated as of October 31, 2002, in the
                  principal sum of Thirty Million Dollars ($30,000,000.00),
                  executed by Grantor and payable to the order of First
                  Tennessee Bank National Association;

                           (ii)     dated as of October 31, 2002, in the
                  principal sum of Fifteen Million Dollars ($15,000,000.00),
                  executed by Grantor and payable to the order of Hibernia;


                                        2
<PAGE>

                           (iii)    dated as of October 31, 2002, in the
                  principal sum of Twenty-Five Million Dollars ($25,000,000.00),
                  executed by Grantor and payable to the order of U. S. Bank;

                           (iv)     dated as of March 31, 2003, in the principal
                  sum of Twenty-Five Million Dollars ($25,000,000.00), executed
                  by Grantor and payable to the order of Regions;

                           (v)      dated as of May 28, 2003, in the principal
                  sum of Fifteen Million Dollars ($15,000,000.00), executed by
                  Grantor and payable to the order of Carolina First;

                           (vi)     dated as of May 28, 2003, in the principal
                  sum of Fifteen Million Dollars ($15,000,000.00), executed by
                  Grantor and payable to the order of National City Bank; and

                           (vii)    dated as of May 28, 2003, in the principal
                  sum of Thirty-Five Million Dollars ($35,000,000.00), executed
                  by Grantor and payable to the order of Bank One,

                  together with and any and all renewals, modifications, and
                  extensions of any of said notes, in whole or in part; and

         6.       All terms and provisions of the Security Agreement, as
heretofore amended, which are inconsistent with the provisions of this Amendment
are hereby modified and amended to conform hereto; and, as so modified and
amended, the Security Agreement is hereby ratified, approved and confirmed.
Except as otherwise may be expressly provided herein, this Amendment shall
become effective as of the date set forth in the initial paragraph hereof.

         7.       All references in all Loan Documents (including, but not
limited to, the Notes, the Security Agreement, and the Loan Agreement) to the
"Security Agreement" shall, except as the context may otherwise require, be
deemed to constitute references to the Security Agreement as amended hereby.

                        [SEPARATE SIGNATURE PAGES FOLLOW]


                                        3
<PAGE>

                                 SIGNATURE PAGE
                                       TO
       SECOND AMENDMENT TO SEVENTH AMENDED AND RESTATED SECURITY AGREEMENT

================================================================================

         IN WITNESS WHEREOF, the Grantor, the Banks and the Agent have caused
this Agreement to be executed by their duly authorized officers, all as of the
day and year first above written.

                                              GRANTOR:

                                              DIRECT GENERAL FINANCIAL SERVICES,
                                              INC., a Tennessee corporation

                                              By: /s/ Barry D. Elkins
                                                  -----------------------------
                                              Title:  SVP/CFO
                                                     --------------------------



                                              BANKS:

                                              FIRST TENNESSEE BANK NATIONAL
                                              ASSOCIATION

                                              By: /s/ Sam Jenkins
                                                  -----------------------------
                                              Title:  Senior Vice President
                                                     --------------------------

                                              HIBERNIA NATIONAL BANK

                                              By: /s/ Janet Olson Rack
                                                  -----------------------------
                                              Title:  Senior Vice President
                                                     --------------------------

                                              U. S. BANK NATIONAL ASSOCIATION

                                              By: /s/ Russell S. Rogers
                                                  -----------------------------
                                              Title:  Vice President
                                                     --------------------------

                                              CAROLINA FIRST BANK

                                              By: /s/ Charles Chamberlin
                                                  -----------------------------
                                              Title:  Executive Vice President
                                                     --------------------------


                           [SIGNATURE PAGE CONTINUED]


                                      S-1
<PAGE>

                                               BANK ONE, NA
                                               (Main Office - Chicago, Illinois)

                                               By: /s/ Robert D. Bond
                                                   ----------------------------
                                               Title:  Vice President
                                                      -------------------------

                                               REGIONS BANK

                                               By: /s/ Sam Prudhomme
                                                   ----------------------------
                                               Title:  Assistant Vice President
                                                      -------------------------

                                               NATIONAL CITY BANK OF KENTUCKY

                                               By: /s/ Kevin C. Anderson
                                                   ----------------------------
                                               Title:  Senior Vice President
                                                      -------------------------



                                               AGENT:

                                               FIRST TENNESSEE BANK NATIONAL
                                               ASSOCIATION

                                               By: /s/ Sam Jenkins
                                                   ----------------------------
                                               Title: Senior Vice President
                                                      -------------------------


                                      S-2
<PAGE>
                                 THIRD AMENDMENT
                                       TO
           SEVENTH AMENDED AND RESTATED PLEDGE AND SECURITY AGREEMENT



         THIS THIRD AMENDMENT TO SEVENTH AMENDED AND RESTATED PLEDGE AND
SECURITY AGREEMENT (the "Amendment") made and entered into as of the 30th day of
June, 2003, by and between DIRECT GENERAL CORPORATION, a Tennessee corporation
(the "Pledgor"), and FIRST TENNESSEE BANK NATIONAL ASSOCIATION, whose address is
165 Madison Avenue, Memphis, Tennessee 38103, Attention: Metropolitan Division
(in its agency capacity being herein referred to as "Agent," and in its
individual capacity as "FTBNA"), as agent for itself, and for HIBERNIA NATIONAL
BANK, Baton Rouge, Louisiana ("Hibernia"), and for U. S. BANK NATIONAL
ASSOCIATION, St. Louis, Missouri ("U. S. Bank"), and for REGIONS BANK,
Birmingham, Alabama ("Regions"), and for CAROLINA FIRST BANK, Greenville, South
Carolina ("Carolina First"), and for BANK ONE, NA (Main Office -- Chicago,
Illinois), Baton Rouge, Louisiana ("Bank One"), and for NATIONAL CITY BANK OF
KENTUCKY, Louisville, Kentucky ("National City Bank"), and for FIFTH THIRD BANK,
Franklin, Tennessee ("Fifth Third") (Agent, Hibernia, U. S. Bank, Regions,
Carolina First and Bank One collectively, the "Original Banks") (the Original
Banks, Fifth Third and National City Bank collectively, the "Banks" and
individually, a "Bank").

                                Recitals of Fact

         Pursuant to that certain Seventh Amended and Restated Pledge and
Security Agreement dated as of October 31, 2002 (the "Original Pledge
Agreement"), Pledgor pledged a second lien security interest in all of the stock
in the Agency Subsidiaries and Affiliated Insurers (as those terms are defined
in the Eighth Amended and Restated Loan Agreement dated as of October 31, 2002,
as amended, referred to hereafter as the "Loan Agreement") to the Agent for the
benefit of the Original Banks as security for all of Pledgor's obligations under
the Eighth Amended and Restated Guaranty Agreement dated October 31, 2002 (the
"Eighth Guaranty").

         Pursuant to that certain First Amendment to Seventh Amended and
Restated Pledge and Security Agreement dated as of March 31, 2003 (the "First
Amendment"), Pledgor pledged a second lien security interest in all of the stock
in the Agency Subsidiaries and Affiliated Insurers (as those terms are defined
in the Loan Agreement) to the Agent for the benefit of the Original Banks as
security for all of Pledgor's obligations under the Ninth Amended and Restated
Guaranty Agreement dated March 31, 2003 (the "Ninth Guaranty").

         Pursuant to that certain Second Amendment to Seventh Amended and
Restated Pledge and Security Agreement dated as of May 28, 2003 (the "Second
Amendment" and the Original Pledge Agreement, the First Amendment and the Second
Amendment collectively referred to herein as the "Pledge Agreement"), Pledgor
pledged a second lien security interest in all of the stock in the Agency
Subsidiaries and Affiliated Insurers (as those terms are defined in the Loan
Agreement) to the Agent for the benefit of the Original Banks and National City
Bank as security



<PAGE>

for all of Pledgor's obligations under the Tenth Amended and Restated Guaranty
Agreement dated May 28, 2003 (the "Tenth Guaranty").

         Pledgor is entering into an Eleventh Amended and Restated Guaranty
Agreement of even date herewith (the "Eleventh Guaranty"), which Eleventh
Guaranty replaces the Tenth Guaranty.

         The Pledgor and the Banks now desire to modify certain terms of the
Pledge Agreement as hereinafter set forth.

         NOW, THEREFORE, in consideration of the premises as set forth in the
Recitals of Fact, the mutual covenants and agreements hereinafter set out, and
other good and valuable consideration, the receipt and sufficiency of which are
hereby acknowledged, it is agreed by the parties as follows:

                                   Agreements

         1.     All capitalized terms used and not defined herein shall have the
meaning ascribed to them in the Loan Agreement.

         2.     To induce the Banks to enter into this Amendment, the Pledgor
does hereby absolutely and unconditionally, certify, represent and warrant to
the Banks, and covenants and agrees with the Banks, that:

                (a)     All representations and warranties made by the Pledgor
         in the Loan Agreement, in the Pledge Agreement, in the Security
         Agreement, as amended, and in all other loan documents (all of which
         are herein sometimes called the "Loan Documents"), are true, correct
         and complete in all material respects as of the date of this Amendment.

                (b)     As of the date hereof and with the execution of this
         Amendment, there are no existing events, circumstances or conditions
         which constitute, or would, with the giving of notice, lapse of time,
         or both, constitute Events of Default.

                (c)     There are no existing offsets, defenses or counterclaims
         to the obligations of the Pledgor, as set forth in the Pledge
         Agreement, the Security Agreement, as amended, the Loan Agreement, or
         in any other Loan Document executed by the Borrower, in connection with
         the Loan.

                (d)     The Pledgor does not have any existing claim for damages
         against the Banks arising out of or related to the Loan; and, if and to
         the extent (if any) that the Borrower has or may have any such existing
         claim (whether known or unknown), the Borrower does hereby forever
         release and discharge, in all respects, the Banks with respect to such
         claim.

                (e)     The Loan Documents, as amended by this Amendment, are
         valid, genuine, enforceable in accordance with their respective terms,
         and in full force and effect.

         3.     Fifth Third is hereby added as a Bank to the Pledge Agreement.



                                       2
<PAGE>

         4.     Section 2(a) of the Pledge Agreement, is hereby deleted in its
entirety and the following is inserted in lieu thereof:

                (a)     the prompt payment by the Pledgor, as and when due and
         payable, of all amounts from time to time owing under or pursuant to
         that certain Eleventh Amended and Restated Guaranty Agreement (the
         "Guaranty Agreement") dated as of June 30, 2003, pursuant to which
         Pledgor has guaranteed the indebtednesses of Direct General Financial
         Services, Inc., a Tennessee corporation ("Borrower"), to FTBNA,
         Hibernia, U.S. Bank, Regions, Carolina First, Fifth Third, National
         City Bank and Bank One, which indebtednesses are evidenced by (i)
         Borrower's promissory note dated as of October 31, 2002, to FTBNA in
         the maximum principal amount of Thirty Million Dollars
         ($30,000,000.00); (ii) Borrower's promissory note dated as of June 30,
         2003, to Hibernia in the maximum principal amount of Twenty Million
         Dollars ($20,000,000.00), (iii) Borrower's promissory note dated as of
         June 30, 2003, to U.S. Bank in the maximum principal amount of Thirty
         Million Dollars ($30,000,000.00); (iv) Borrower's promissory note dated
         as of March 31, 2003, to Regions in the maximum principal amount of
         Twenty-Five Million Dollars ($25,000,000.00); (v) Borrower's promissory
         note dated as of May 28, 2003, to Carolina First in the maximum
         principal amount of Fifteen Million Dollars ($15,000,000.00); (vi)
         Borrower's promissory note dated as of May 28, 2003, to National City
         Bank in the maximum principal amount of Fifteen Million Dollars
         ($15,000,000.00); (vii) Borrower's promissory note dated as of June 30,
         2003, to Fifth Third in the maximum principal amount of Ten Million
         Dollars ($10,000,000.00); and (viii) Borrower's promissory note dated
         as of May 28, 2003, to Bank One in the maximum principal amount of
         Thirty-Five Million Dollars ($35,000,000.00) [the eight (8) promissory
         notes herein described being collectively referred to as the "Notes,"
         and FTBNA, Hibernia, U.S. Bank, Regions, Carolina First, National City
         Bank, Fifth Third and Bank One being collectively referred to as the
         "Banks"]; and

         5.     Section 2(b) of the Pledge Agreement, is hereby deleted in its
entirety and the following is inserted in lieu thereof:

                (b)     the due performance and observance by the Pledgor of all
         of the Pledgor's covenants, agreements, duties, representations and
         obligations from time to time existing pursuant to this Agreement and
         that certain Eighth Amended and Restated Loan Agreement of even date
         herewith, as amended by that certain First Amendment to Eighth Amended
         and Restated Loan Agreement dated as of March 31, 2003, as amended by
         that certain Second Amendment to Eighth Amended and Restated Loan
         Agreement dated as of May 28, 2003, and as amended by that certain
         Third Amendment to Eighth Amended and Restated Loan Agreement dated as
         of June 30, 2003 (as amended, the "Loan Agreement"), both among
         Pledgor, Borrower, Agent, the Banks and others; and in any other
         instrument which now or hereafter secures the Guaranty Agreement.

         6.     All terms and provisions of the Pledge Agreement, as heretofore
amended, which are inconsistent with the provisions of this Amendment are hereby
modified and amended to conform hereto; and, as so modified and amended, the
Pledge Agreement is hereby ratified, approved and confirmed. Except as otherwise
may be expressly provided herein, this Amendment shall become effective as of
the date set forth in the initial paragraph hereof.

         7.     All references in all Loan Documents (including, but not limited
to, the Pledge Agreement, the Security Agreement, and the Loan Agreement) to the
"Pledge Agreement" shall, except as the context may otherwise require, be deemed
to constitute references to the Pledge Agreement as amended hereby.

                        [SEPARATE SIGNATURE PAGES FOLLOW]




                                       3
<PAGE>



                                 SIGNATURE PAGE
                                       TO
  THIRD AMENDMENT TO SEVENTH AMENDED AND RESTATED PLEDGE AND SECURITY AGREEMENT

================================================================================


         IN WITNESS WHEREOF, the Pledgor, the Banks and the Agent have caused
this Agreement to be executed by their duly authorized officers, all as of the
day and year first above written.

                                    PLEDGOR:

                                    DIRECT GENERAL CORPORATION, a Tennessee
                                    corporation

                                    By: /s/ Brian Moore
                                       -----------------------------------------
                                    Title: President
                                          --------------------------------------


                                    BANKS:

                                    FIRST TENNESSEE BANK NATIONAL ASSOCIATION

                                    By: /s/ Sam Jenkins
                                       -----------------------------------------
                                    Title: Senior Vice President
                                          --------------------------------------

                                    HIBERNIA NATIONAL BANK

                                    By: /s/ Janet Olson Rack
                                       -----------------------------------------
                                    Title: Senior Vice President
                                          --------------------------------------

                                    U. S. BANK NATIONAL ASSOCIATION

                                    By: /s/ Russell S. Rogers
                                       -----------------------------------------
                                    Title: Vice President
                                          --------------------------------------

                                    CAROLINA FIRST BANK

                                    By: /s/ Charles Chamberlin
                                       -----------------------------------------
                                    Title: Executive Vice President
                                          --------------------------------------



                           [SIGNATURE PAGE CONTINUED]




                                      S-1
<PAGE>

                                    BANK ONE, NA
                                    (MAIN OFFICE - CHICAGO, ILLINOIS)

                                    By: /s/ Robert D. Bond
                                       -----------------------------------------
                                    Title: Vice President
                                          --------------------------------------

                                    REGIONS BANK

                                    By: /s/ Sam Prudhomme
                                       -----------------------------------------
                                    Title: Assistant Vice President
                                          --------------------------------------

                                    NATIONAL CITY BANK OF KENTUCKY

                                    By: /s/ Kevin C. Anderson
                                       -----------------------------------------
                                    Title: Senior Vice President
                                          --------------------------------------

                                    FIFTH THIRD BANK

                                    By: /s/ David Hicks
                                       -----------------------------------------
                                    Title: Vice President Managing Director
                                          --------------------------------------




                                    AGENT:

                                    FIRST TENNESSEE BANK NATIONAL ASSOCIATION

                                    By: /s/ Sam Jenkins
                                       -----------------------------------------
                                    Title: Senior Vice President
                                          --------------------------------------



                                      S-2