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, 1997.

         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 Salary" is the annualized weekly base pay of the
Participant in effect as of December 31 of the Plan year.

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

         (c)  "Discretionary  Award" is the increment above the Guaranteed Award
which is awarded to a Participant based on the discretion of the Committee. This
amount   combined  with  the   Guaranteed   Award  cannot  exceed  150%  of  the
Participant's Eligible Individual Award.

         (d) "Eligible Award  Percentage" is that percentage amount set forth on
Exhibit B which  shows  the  direct  numeric  relationship  associated  with the
attainment  of  Threshold,  Goal,  or  Maximum  performance,  and it is  used in
determining  potential  Eligible Tier Awards.  The Eligible Award  Percentage is
calculated as follows:

         Example Calculation for Eligible Award Percentage for EPS
         for a Participant in Tier B

         Step 1:  Compare  actual EPS results for the fiscal year (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)  to the highest goal  specified in Exhibit A that it exceeds
         (in this example, assume the actual EPS results are $2.00)

                           $0.05 = $2.00 - $1.95
                                   (Threshold)

         Step 2: Interpolate between the Threshold and Goal (or between the Goal
         and  Maximum  as the  case may be) to  determine  what  percentage  the
         Participant  is  above  the  Threshold  or  Goal.  There  is no need to
         interpolate if the Maximum has been exceeded. In this example, $0.05 is
         50% between Threshold ($1.95) and Goal ($2.05).

                                    50% = $0.05 / ($2.05 - $1.95)

         Step 3: Take the eligible  award  percentage for EPS from Exhibit B for
         the Participant's  particular tier category and for the goal level that
         has been attained (e.g.,  Threshold or Goal) and  interpolate  based on
         50%  attainment.  The eligible award  percentages  for EPS in Tier B on
         Exhibit B are 15% for Threshold and 30% for Goal.

                                    22.5% = ((30% - 15%) x 50%) + 15%

         In this example,  18% is the Eligible  Award  Percentage  for EPS for a
         Participant in Tier B.

         The same process is used to compute the Eligible  Award  Percentage for
         Growth.
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<PAGE>

         (e)  "Eligible   Individual   Award"  is  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
base used to determine the Guaranteed Award and the Discretionary Award.

         (f)  "Eligible  Tier Award" is the award  potential for a tier based on
EPS  and  Growth  results.  Eligible  Tier  Award  is the  sum  of all  Eligible
Individual Awards for all of the Participants in a particular tier.

         (g) "EPS" is ALFC  consolidated  fully 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.

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

         (i) "Growth" is 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.

         (j)      "Guaranteed Award" is guaranteed to Participants and is
75% of their Eligible Individual Award.

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

         (l)      "Participant" is a key employee recommended by the
Chairman of ALFC and approved by the Committee to participate in
this Plan.

         (m)      "Threshold" is the minimum level of performance that
will warrant an award.  No award will be made for performance
under the Threshold.

3.       PARTICIPATION AND TIERS

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

                                    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.  The
Threshold  for EPS must be  attained  before  any  award  will be made  based on
Growth, which is the second performance indicator.

5.       AWARDS

         (a) A Participant  may receive an Eligible  Individual  Award under the
Plan.  No award will be made for  performance  that does not meet the  Threshold
goal for EPS.  Upon  meeting  the  Threshold  goal for EPS, a  Participant  will
receive a Guaranteed Award.  Depending on the determination of the Committee,  a
Participant may or may not receive a Discretionary  Award. A Participant's total
award  is the sum of the  Guaranteed  Award  and the  Discretionary  Award.  The
Discretionary Award combined with the Guaranteed Award cannot exceed 150% of the
Participant's Eligible Individual Award.

         (b) 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.  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.
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<PAGE>

         (c) In the event a  Participant  does not meet the  Threshold  goal 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.

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
weeks that a  Participant  has been eligible for a tier and dividing that number
by the calendar weeks 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 the 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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<PAGE>
<TABLE>


                                             EXHIBIT A

<CAPTION>
<S>                                    <C>                         <C>

                                                GOALS
                                       Threshold                    Goal                     Maximum

EPS                                     $2.00                      $2.10                     $2.20

GROWTH                                    12%                        15%                       18%

</TABLE>


                                       85
<PAGE>
<TABLE>

                                            EXHIBIT B

<CAPTION>
<S>                                  <C>                <C>              <C>  

                                     ELIGIBLE AWARD PERCENTAGES

                                     Threshold          Goal             Maximum           Weight

Tier A - President:

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%
                                       86
</TABLE>