By M.P. MCQUEEN

A major insurer has dumped a chunk of its long-term-care policies into an independent trust, putting tens of thousands of policyholders at risk of reduced benefits or big premium increases.

Conseco Inc. officials have said the transfer of many of the insurers' long-term care policies to a new state-supervised nonprofit trust, Senior Health Insurance Co. of Pennsylvania, allows it to concentrate on its core businesses. The policies were a drag on the company's earnings because they were underpriced and required continuing capital infusions to meet the long-term needs of policyholders.

The trust will pay claims from a pool of funds transferred to it from Conseco, including $175 million in capital. But A.M. Best Co., the insurance-rating firm, warns that the trust may need to raise rates and reduce benefits and has no access to additional capital. If the trust were to become insolvent, some policyholders might ultimately have to rely on the Pennsylvania state guaranty association to pay any claims, up to limits set by state laws, other experts said.

More than 140,000 owners of Conseco Senior Health Insurance Co. long-term-care policies across the U.S. are affected by the plan, which was worked out with Pennsylvania regulators. Conseco Inc. is headquartered in Carmel, Ind., but its Senior Health long-term care unit was based in Pennsylvania, making it subject to that state's regulators. The unit stopped selling new policies in 2003.

Pennsylvania Insurance Commissioner Joel Ario defended the transfer, saying in a written statement, "There were no good choices here, only bad ones and worse ones." Mr. Ario said Conseco already had plowed more than $900 million into Conseco Senior Health Insurance, and its corporate board had made it clear no more money was coming. "The likely result would have been either substantial rate increases or insolvency," he said.

Frank Darras, an Ontario, Calif., attorney who represents policy owners in disputes with insurers, calls the Conseco spinoff "unfounded, unfair and unprecedented. This company took the premiums and promised them independent living in their golden years, and they have kicked them to the curb. The trust can't survive. It is on the ventilator right now."

Conseco disagrees. In a statement issued Nov. 12, when the transfer into the trust was concluded, Chief Executive Jim Prieur said: "The completion of this transfer and the formation of the independent trust is a balanced solution for all of Conseco's constituents and Senior Health's long-term-care policyholders."

Critics say the deal may set a precedent for other financially troubled insurance companies to set adrift long-term policies.

Policyholders and their children are concerned. Kitty Spillman of Raleigh, N.C., says her 86-year-old mother, Thelma Brewer, relies on a Conseco policy for her assisted-living expenses. The policy was expected to pay lifetime benefits. If she outlived her benefits, it might force her mother to pay for continuing care out of her own funds, depleting her estate.

"I am worried they will run out of money," says Ms. Spillman, who is her mother's guardian. She says she hadn't received any notice from Conseco about the transfer of the policies to the trust. Mr. Ario, the insurance commissioner, says the trust had begun mailing notices to policyholders during the third week in November.

Long-term-care policies help defray nursing-home or assisted-living costs. About eight million Americans now own one. Most of the policies are purchased by people in their 50s and 60s for protection against claims that may not occur for decades. In 2007, the average policy buyer was 58 years old and paid $1,950 for a long-term care policy in the first year of coverage, says Jesse Slome, a spokesman for the American Association for Long Term Care Insurance, a trade group.

Early versions of long-term-care insurance policies were introduced in the 1970s, and by the early 1990s more than 100 companies were offering them, according to Limra International, a research group. But some of the insurers' assumptions turned out to be wrong, leaving policies underpriced and a drag on their finances. Early purchasers lived longer, generated higher medical expenses and terminated fewer policies than insurers anticipated. As a result, some insurers have had to raise premiums many times on policies that were supposed to be stable in price.

In 2000, the National Association of Insurance Commissioners issued new rules for long-term-care policies to address some of these problems. Insurers have also limited benefits, tightened eligibility and underwriting requirements, and raised premiums on newer policies. But many of the older policies remain in force.