A group of Indiana policyholders has filed a lawsuit against Northwestern Mutual Life Insurance Co. and one of its agents, claiming the agent sold life insurance policies illegally disguised as tax-free retirement plans.

The suit, filed in Marion County Superior Court in Indianapolis on Jan. 18 on behalf of 20 policyholders, names agent Daniel Brunette of Marion County and Northwestern Mutual. The suit claims Brunette told customers that once they turned 65 they could stop making premium payments on their life insurance policies and start receiving regular tax-free payments. (The suit also names Lew Derrickson, a general agent to whom Brunette reported.)

Greg Hahn, an attorney with Tabbert Hahn Earnest & Weddle of Indianapolis, which filed the lawsuit on behalf of 23 policyholders, says the plaintiffs were unaware that the "tax-free retirement income" was actually a loan they were taking out against their policies. "They were unaware they would have to pay hundreds of thousands of dollars back," he says.

Hahn also says sometimes Brunette advertised investment return rates at 10 to 12 percent, when in fact the policies were making only 1 to 3 percent. Hahn says Brunette encouraged policyholders to take money out of their 401(k) plans and IRAs and put it into life insurance policies.

The lawsuit is seeking money to "justly compensate" policyholders for their damages. After the suit was filed, Hahn says 20 to 30 more policyholders called the law firm with similar complaints against the same two agents. He says his firm plans to add more plaintiffs to the suit, but they are not seeking class action status at this time.

Thomas Towers, a spokesperson for Northwestern Mutual, says the company will vigorously defend itself in court. "We've looked at the complaints behind the lawsuits and find them to be completely without merit," he says. "We believe these claims have been trumped up in an effort to extract an unjust settlement with the company."