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CRL                                                       Central Reserve life
                                                           INSURANCE COMPANY





November 12, 1998



Provident American Corporation
P. O. Box 511
Norristown, Pennsylvania 19404-0511
ATTN:        Mr. Alvin H. Clemens
             Chairman and Chief Executive Officer

RE:      Acquisition of Provident American Life
         and Health Insurance Company ("PALHIC")

Gentlemen:

This letter is to memorialize a binding agreement between Provident American
Corporation ("PAMCO"), joined in by its subsidiary, Provident Indemnity Life
Insurance Company ("PILIC"), and Central Reserve Life Insurance Company ("CRL')
with respect to the purchase of PALHIC by CRL from PILIC, subject to all
required regulatory approvals.

This letter will also evidence our agreement with respect to the ongoing
relationship between PAMCO and CRL. The agreements between the parties, which
have been approved by all necessary corporate action, are as follows:

         1.         Purchase of PALHIC. Subject to regulatory approval, on or
                    before January 1, 1999, CRL will purchase all of the stock
                    of all classes of PALHIC for an amount equal to the adjusted
                    capital and surplus of PALHIC, with its assets and
                    liabilities to be only those approved by CRL. PALHIC will
                    maintain reserves deemed adequate by the Chicago office of
                    Milliman & Robertson at closing with a reserve true-up after
                    one year guaranteed by PAMCO.

         2.         PILIC Reinsurance. All of the in force health business of
                    PALHIC will be reinsured to PILIC prior to the closing, and
                    the life insurance in force in PALHIC will be also reinsured
                    to PILIC. At closing, there will be no insurance in force in
                    PALHIC that is not reinsured to PILIC, and PALHIC will have
                    no operations or employees.


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Provident American Corporation
November 12, 1998
Page 2

         3.         Payment to PILIC. Subject to regulatory approval and
                    approval of CRL's purchase of PALHIC, CRL, joined in by
                    Reassurance Company of Hannover ("RCH"), will enter into a
                    quota-share reinsurance agreement with PILIC to reinsure all
                    of the health business in PILIC, constituting approximately
                    $100 million in premium (the "Ceded Block"). CRL, joined in
                    by RCH, will make a $10 million cash payment (the "Ceding
                    Commission") to PILIC in connection with the reinsurance.

                    Profits from the Ceded Block will be retained by CRL and RCH
                    until they have recaptured the entire Ceding Commission,
                    together with any losses incurred and interest thereon at
                    12% per annum.

         4)         PAMCO Guarantee. The first $5 million of the Ceding
                    Commission shall be an unconditional payment. PAMCO will
                    unconditionally guarantee that the balance of the Ceding
                    Commission, together with interest at 12%, will be paid to
                    CRL from cumulative profits of the Ceded Block, or PAMCO
                    will otherwise pay such amount to CRL. As security for this
                    guarantee, PAMCO will execute a security agreement in favor
                    of CRL granting CRL a first lien with respect to the stock
                    of PILIC. This agreement will contain the usual lender
                    covenants regarding corporate governance and other matters.
                    PAMCO's guarantee will be in default if CRL does not receive
                    at least $10 million in profits plus interest within five
                    (5) years after closing. After CRL recovers the Ceding
                    Commission plus interest and other amounts due, PILIC shall
                    be entitled to receive an amount equal to 2/3 (two-thirds)
                    of the policy fees paid with respect to the Ceded Block for
                    1999 and 1/3 (one-third) of such fees for 2000 from the
                    profits derived from the Ceded Block, but not otherwise. CRL
                    shall have no further obligation to PILIC or PAMCO with
                    respect to the Ceded Block.

         5.         Continued Marketing. At closing, PAMCO and its affiliate,
                    Provident Health Services, will transfer to PALHIC and CRL
                    all of their rights under any agreements with agents and
                    brokers for the sale of health insurance, and PAMCO and
                    PILIC will enter into non-competition, non-solicitation
                    agreements regarding such agents with respect to the future
                    sale of health insurance products. PALHIC will continue to
                    issue HealthQuest, Solution and AdvantaEdge policies or
                    similar policies (the "PALHIC


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Provident American Corporation
November 12, 1998
Page 3

                    Policies") for a period of three (3) years following the
                    closing and will make such policies available for sale by
                    the existing agency force of PALHIC and agents recruited by
                    their hierarchy (the "PALHIC Agents") during that time
                    period. CRL will establish a mechanism to track the business
                    written by such PALHIC agents.

         6.         PILIC Reinsurance. During 1999, PILIC may reinsure up to 20%
                    of the PALHIC policies issued after closing and, thereafter,
                    up to 50% of such policies issued after 1999 for a period of
                    four (4) additional years from the first anniversary of the
                    date of closing. Policy fees for such products will be
                    shared based on the quota-share ratio, except that PALHIC
                    shall be entitled to retain all application fees.

         7.         Limitation on Expenses. Maximum expense allowances with
                    respect to the policies which are the subject of the
                    reinsurance described in Paragraph No. 6 above shall be 43%
                    of collected premium for first year (administration 1O%,
                    premium tax 3%, commission 28%, marketing expenses 2%) and
                    26% for subsequent years (administration 10%, premium tax
                    3%, commissions 13%). In addition, CRL will receive a 3%
                    administrative payment with respect to policies issued after
                    closing, which fee will reduce to 2% for total policies
                    under administration which exceed $100 million of premium in
                    force. Additionally, managed care costs will be paid as
                    incurred.

         8.         Ceded Block Agreements. With respect to the Ceded Block, CRL
                    will assume administrative responsibility for such business
                    effective at closing. In this regard, CRL will assume the
                    obligations to Health Plan Services ("HPS") under PAHLIC's
                    existing contract with HPS, except that CRL will not be
                    responsible for the Base Service Fee and Loss Ratio
                    Management Fee ($95,000 per month) to HPS and will only be
                    required to pay the percentage payment with respect to claim
                    services, and not the $6.00 per claim charge presently being
                    paid. CRL will administer the Ceded Block for administration
                    costs equal to the HPS costs plus 2-1/2% for other
                    administrative costs plus premium taxes and managed care
                    costs. In addition, CRL will receive a 3% administrative
                    payment with respect to policies issued after closing, which
                    fee will reduce to 2% for total policies under
                    administration which exceed $100 million of premium in
                    force.


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Provident American Corporation
November 12, 1998
Page 4

         9.         Personnel and Facilities. At closing, PILIC will furnish to
                    CRL on a contract basis such employees as CRL may designate
                    to assist in the transition of the Ceded Block to CRL's
                    administrative facility in Cleveland. CRL will reimburse
                    PILIC for the costs of such employees and will lease the
                    PILIC's facilities and all of the equipment utilized in
                    connection with the health insurance business on a
                    month-to-month basis for a payment of $20,000 per month,
                    such lease to be cancelable by CRL on ninety (90) days
                    notice. With respect to the employees provided by PILIC, CRL
                    will make a payment to PILIC for distribution to such
                    employees equal to four (4) weeks' pay at such time as such
                    employees are no longer needed by CPL.

         10.        Internet Sales. PALHIC will provide health insurance
                    products for Internet sale through HealthAxis for a
                    three-year period. PILIC may reinsure such products on a
                    50/50 quota-share basis, except that the maximum first-year
                    expense allowance shall not exceed 28% with commission
                    expense reduced to 15% and marketing expense eliminated and
                    the second-year expense allowance shall not exceed 21% with
                    commission expense reduced to 8%. In addition, HealthAxis
                    will be entitled to retain all administrative fees until it
                    has recovered the payments made to initiate the Internet
                    program. Thereafter, fees will be split as set forth in
                    Paragraph No. 6 above. CRL will also be entitled to a 2%
                    administrative payment with respect to all Internet
                    policies.

         11.        Additional Internet Products. CRL will also work to develop
                    additional health insurance products for sale over the
                    Internet through HealthAxis and enter into reinsurance
                    agreements with PILIC consistent with those described above.


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Provident American Corporation
November 12, 1998
Page 5

         12.        PAMCO/PILIC Undertaking. PAMCO and PILIC jointly agree to
                    obtain the cancellation of all existing reinsurance
                    agreements with respect to the Ceded Block immediately prior
                    no closing and to hold CRL harmless from any amounts due to
                    any reinsurer in this regard. Further, PAMCO agrees to
                    indemnify PALHIC and CRL from any claims with respect to
                    HPS, other than the ongoing claims services obligation
                    assumed, and from any and all employee claims of PILIC or
                    PALHIC employees with respect to pension plans, stock
                    purchase plans, or other employee benefits arising prior to
                    the closing, and from any claims regarding the sale by
                    PALHIC of debit life insurance to Life and Health Insurance
                    Company of America in 1996.

If the above sets forth our agreements and understandings, please sign below to
so indicate and to bind PAMCO and its affiliates to the terms of this agreement.

Sincerely,

CENTRAL RESERVE LIFE INSURANCE COMPANY



By:   /s/ Frank W. Grimone


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Provident American Corporation
November 12, 1998
Page 6

                          AGREED AND accepted THIS  12th  DAY OF NOVEMBER, 1998.
                    
                          PROVIDENT AMERICAN CORPORATION
                    
                    
                          By:  /s/ Alvin H. Clemens
                               -------------------------------
                                   Authorized Officer
                    
                    
                          PROVIDENT INDEMNITY LIFE INSURANCE COMPANY
                    
                    
                    
                          By:  /s/ Alvin H. Clemens
                               -------------------------------
                                   Authorized Officer
                    
                    
                          PROVIDENT AMERICAN LIFE AND HEALTH INSURANCE
                          COMPANY
                    
                    
                    
                          By:  /s/ Alvin H. Clemens
                               -------------------------------
                                   Authorized Officer