ALLIED LIFE FINANCIAL CORPORATION

                              SHORT TERM MANAGEMENT
                                 INCENTIVE PLAN

1.       PURPOSE

         This ALLIED Life Financial  Corporation Short Term Management Incentive
Plan (the "Plan") is effective January 1, 1998.

         The purpose of this Plan is to  encourage  outstanding  performance  by
certain key  employees of ALLIED Life  Insurance  Company in the  attainment  of
annual financial and operating goals of ALLIED Life Financial Corporation,  Inc.
("ALFC") and its subsidiaries (collectively "ALLIED Life").

2.       DEFINITIONS

         The  capitalized  terms  used  throughout  the Plan have the  following
meaning:

                  (a)         "Base Award" is defined in Paragraph 5(c).

                  (b) "Base  Salary" is the  annualized  weekly  base pay of the
                  Participant  in effect as of the last day in the  position for
                  which the bonus is being  calculated,  which in no event shall
                  be later than December 31 of the Plan year.

                  (c) "Committee"  shall mean the Compensation  Committee of the
                  Board of Directors of ALFC.

                  (d) "Discretionary Award" is defined in Paragraph 5(d).

                  (e) "Discretionary Tier Award" is defined in Paragraph 5(i).

                  (f) "Eligible Award Percentage" is defined in Paragraph 5(b).

                  (g) "Eligible Individual Award" is defined in Paragraph 5(a).

                  (h) "Eligible Tier Award" is defined in Paragraph 5(g).

                  (i) "EPS" is defined in Paragraph 4.

                  (j)  "Goal"  is the  expected  level  of  performance  used to
                  establish targeted awards as approved by the Committee.

                  (k)  "Growth" is defined in Paragraph 4.

                  (l) "Maximum" is the level of performance at which the maximum
                  eligible award could be made.

                  (m) "Participant" is a key employee of ALLIED Life recommended
                  by the  President  of ALFC and  approved by the  Committee  to
                  participate in this Plan.

                  (n) "Threshold" is the minimum level of performance  that will
                       warrant an award.

                  (o) "Total Award" is defined in Paragraph 5(e).

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3.       PARTICIPATION AND TIERS

         Participation  in the Plan is  tiered by  responsibility  level and the
          short-term impact of the management position.

         General Responsibility Levels

         Tier A       President
         Tier B       Primary Vice Presidents
         Tier C       Other Vice Presidents
         Tier D       Key Managers

A participation  list specifying the Participants in each tier shall be approved
by the  Committee  prior to each fiscal year.  The Committee may amend such list
from time to time to add or delete Participants.

         Each tier level of participation will have varying award opportunity at
the Threshold,  Goal, and Maximum performance levels for each of the performance
indicators.

4.       PERFORMANCE INDICATORS

         Two performance indicators, EPS and Growth, will be used to measure the
success of ALLIED Life and the level of bonus to be paid under this Plan.  "EPS"
is  defined  as the ALFC  consolidated  diluted  operating  earnings  per  share
computed in accordance with generally accepted accounting  principles  ("GAAP").
EPS excludes realized investment gains and losses net of excess deferred policy
acquisition costs ("DPAC") amortization and net of income taxes. "Growth" is 
defined as a  performance  indicator  and is the increase in revenue from the
prior year stated in terms of a percentage  increase or dollar  target. Revenue
for ALFC is  expressed  as GAAP  insurance  revenues  plus 2% first year annuity
premiums less single  premium income  annuities.  The Threshold for EPS must be
attained before any award will be made based on Growth.

5.       AWARDS

Individual Calculations

         (a) A Participant  may receive an Eligible  Individual  Award under the
Plan.  "Eligible  Individual  Award" is  defined  as the award  potential  for a
Participant  based on EPS and Growth results.  Eligible  Individual Award is the
sum of (i) the Eligible  Award  Percentage for EPS multiplied by the Base Salary
for the Participant and (ii) the Eligible Award Percentage for Growth multiplied
by the Base Salary for the  Participant.  The Eligible  Individual  Award is the
amount used to determine the Base Award and the Discretionary Award.

         (b) "Eligible  Award  Percentage" is defined as the  percentage  amount
used to determine  the potential  Eligible  Tier Awards and Eligible  Individual
Award.  The  amount  of the  Eligible  Award  Percentage  is tied  to  tier  and
performance  level  attained  (Threshold,  Goal,  or  Maximum),  as set forth in
Exhibit B.


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                Example for Eligible Award Percentage for EPS for a Participant

                Step 1:  Compare  actual EPS  results for the fiscal year to the
         goals  specified in Exhibit A. If the actual EPS results for the fiscal
         year do not meet the Threshold,  then the Eligible Award  Percentage is
         0, and no further calculations are necessary.

                Step 2: Determine the percent by which the EPS results  exceeded
         the Threshold value (or the goal value as the case may be). There is no
         need  for a  calculation  if  the  Maximum  results  were  achieved  or
         exceeded.

                Step 3: Identify the Eligible Award Percentage for EPS indicator
         in the tier at the Threshold level, as shown in Exhibit B. Multiply the
         Eligible  Award  Percentage  by the percent  calculated in Step 2. This
         will calculate the actual Eligible Award Percentage  available based on
         the profit results attained.

          Repeat  Steps 1 through 3 using  Growth to compute the  Eligible
          Award Percentage for Growth.

 (c) Upon meeting the Threshold  for EPS, a  Participant  will receive a
     Base Award. "Base Award" is defined as the award to a Participant when a 
     minimum  performance  level is met.  The Base  Award  is 60% of the  
     Eligible  Individual Award.

 (d) Depending on the determination of the Committee,  a Participant may or may
     not receive a Discretionary Award. "Discretionary Award" is defined as an
     amount  separate from the Base Award which is awarded to a Participant  
     based on the  discretion of the Committee. The Discretionary Award is 
     calculated as a percentage of the Eligible Tier Award.

 (e) A  Participant's  "Total  Award" is  defined as the sum of the Base Award 
     and the  Discretionary  Award. The  Discretionary  Award combined with the
     Base Award cannot exceed 150% of the Participant's Eligible Individual 
     Award.

 (f) In the event a Participant does not meet the Threshold for EPS, the
     Committee may, in unusual or extraordinary circumstances,  award the 
     Participant a special award under the Plan. This paragraph may only be 
     invoked  by the Committee in rare and extreme situations.

Tier Calculations

         (g) "Eligible Tier Award" is defined as the award  potential for a tier
based on EPS and Growth results.  Eligible Tier Award is the sum of the Eligible
Individual Awards for all of the Participants in a particular  tier. Total 
awards made to all of the Participants in a particular  tier shall not exceed 
100% of the Eligible Tier Award,  but the total awards for a particular tier may
be less than the Eligible Tier Award.

         (h) Notwithstanding the foregoing,  if the Committee  determines that a
Participant  has  shown  extraordinary  performance  in  a  calendar  year,  the
Committee  may  exceed  the  Eligible  Tier  Award  in  order  to  increase  the
Discretionary Award for the Participant showing such extraordinary performance.

         (i)  "Discretionary  Tier  Award" is defined as the portion of the tier
award  potential  that is not  guaranteed  to payout but may be awarded based on
contribution and performance. This portion may equal up to 40% of the  Eligible
Tier Award.  A  Participant  may receive a portion, all, or none of the
Discretionary Tier Award.


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6.       PRORATED AWARDS

         Employees who become eligible for  participation in this Plan after the
beginning  of the Plan year may  receive a prorated  award based on the time the
employee was a  Participant  and based on active time  employed  during the Plan
year.  Prorated  awards will be calculated by determining the number of calendar
days that a Participant has been eligible for a tier and dividing that number by
the calendar days in that Plan year.

7.       DEATH, DISABILITY, OR RETIREMENT

         In the event that a Participant dies, becomes disabled,  or retires due
to age in  accordance  with ALLIED Life  policy,  a prorated  award will be made
based on active time employed as a Participant during the Plan year.

8.       PLAN YEAR

         The Plan year will be ALFC's fiscal year.

9.       TRANSFERABILITY

         A Participant may not sell,  pledge,  donate,  or otherwise  assign any
interest in this Plan.

10.      EMPLOYMENT

         Nothing in this Plan confers upon a Participant  any right to continued
employment  or  interferes  with or limits  in any way  ALLIED  Life's  right to
terminate the employment of a Participant at any time.

11.      TERMINATION OF EMPLOYMENT

         If a Participant  terminates employment or is terminated by ALLIED Life
for any  reason  other  than  death,  disability,  or  retirement  due to age in
accordance with ALLIED Life's policy,  and if such  termination date is prior to
the payment  date of an award under this Plan,  any right to an award under this
Plan is forfeited.


12.      PLAN AMENDMENT OR TERMINATION

         The Committee may amend or terminate the Plan at any time. Participants
will be notified of such action as soon as it is practical to do so.

         In the event of any change in the corporate structure of ALFC affecting
the goals set forth in Exhibit A or the eligible award  percentages set forth in
Exhibit B, and where such change in corporate structure would adversely affect a
Participant,  the  Committee  may  adjust  or  amend  the  Plan  so  as  not  to
disadvantage  a Participant.  In the event that a change in accounting  rules or
procedures  would affect the goals set forth in Exhibit A or the eligible  award
percentages set forth in Exhibit B, and where such change in accounting rules or
procedures  would adversely  affect or create a windfall for a Participant,  the
Committee may adjust or amend the Plan.

13.      ADMINISTRATION

         All matters  pertaining to the  administration of this Plan will be the
responsibility  of the  Committee,  and any decisions of the Committee  shall be
conclusive and binding.  This includes all matters of interpretation,  areas not
specified in the Plan, and any other issues that may affect the Plan.

14.      GOVERNING LAW

         The Plan will be administered,  enforced, construed, and interpreted in
accordance with the laws of the State of Iowa.


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<TABLE>
<CAPTION>

                                                      EXHIBIT A


                                                        GOALS

                                               Threshold                    Goal                     Maximum

<S>                                              <C>                        <C>                       <C>  
EPS                                              $1.90                      $2.00                     $2.10

GROWTH                                            8%                         10%                       12%
</TABLE>

<TABLE>
<CAPTION>

                                                      EXHIBIT B


                                             ELIGIBLE AWARD PERCENTAGES

                                     Threshold          Goal             Maximum           Weight

Tier A - President:

<S>                                      <C>               <C>              <C>               <C>
EPS                                      19%               38%              56%               75%
Growth                                    6%               12%               19%              25%
      Total                              25%               50%               75%             100%

Tier B - Primary Vice Presidents:

EPS                                      15%               30%               45%              75%
Growth                                    5%               10%               15%              25%
      Total                              20%               40%               60%             100%

Tier C - Other Vice Presidents

EPS                                      12%               24%              36%               75%
Growth                                    4%                8%               12%              25%
      Total                              16%               32%               48%             100%

Tier D - Key Managers

EPS                                       3%              4.5%                6%              75%
Growth                                    1%              1.5%                2%              25%
     Total                                4%                6%                8%             100%
</TABLE>


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