Metropolitan Life Insurance Co., the nation's second-largest life insurer, agreed yesterday to pay as much as $1.7 billion to settle lawsuits by policyholders who said they were tricked into buying policies that ended up costing them far more than they expected.

The settlement, which must still be approved by a federal court, covers 7 million current and former policyholders. It encompasses three class-action suits and more than a dozen other suits pending against the company.

"This settlement provides a fair resolution to issues that have been the subject of protracted litigation and that have affected much of our industry," Robert H. Benmosche, the company's chairman, said in a statement.

The company admits no wrongdoing as part of the settlement.

Plaintiffs' attorney Melvyn I. Weiss of Milberg Weiss Bershad Hynes & Lerach LLP in New York called it "a very good settlement because everybody will get a significant benefit." Some policyholders will get cash, while others will get enhanced death benefits, which will add up to "billions and billions" of dollars of additional insurance, he said.

The case is another in a series of legal actions against top writers of life insurance, growing out of sales practices in the 1980s and early '90s. In this case, as in others, the carriers are accused of deceiving customers and policyholders about the characteristics of policies the companies were selling.

Prudential Insurance Co. of America, the nation's largest life insurer, and New York Life Insurance Co., the fourth-largest, have recently settled cases involving sales practices.

Among the complaints against MetLife are that its sales representatives misled customers about so-called "vanishing premium" policies. These were policies for which the customer was to pay premiums for a period of time, after which the policies' internal investment earnings were projected to be sufficient to make future premium payments unnecessary.

But the projections were based on the high interest rates of the early 1980s, and when rates declined, the premiums failed to vanish.

Other complaints about MetLife involved universal life insurance, a type of policy under which the policyholder can vary the premium or the death benefit. When interest rates are lower than projected, such policies require higher premiums or the death benefit falls. The company was also accused of persuading policyholders to surrender older policies and buy new ones, incurring unnecessary additional sales charges, a process known as churning.

MetLife has been embroiled in controversy over its sales practices for some time. It agreed in November to pay a $25 million civil penalty to settle a federal investigation of its sales practices, and in October it agreed to settle a Connecticut state case. In 1994, it paid $109.5 million to a group of state insurance regulators to end their probe.

Cases involving other companies in the industry have involved variations on the churning technique. In one case, salespeople were accused of persuading policyholders with paid-up policies to buy additional coverage that, plaintiffs said, salespeople claimed were free.

In fact, the new policies were not free. Instead, the policyholder was deceived into signing papers that borrowed the cash value of the old policy to pay for the new one. Only when the cash value was depleted and the policyholder started getting bills for both policies was the true situation uncovered, plaintiffs said.

The MetLife settlement will go before a federal judge for approval at a hearing on Dec. 2. The insurer will send letters explaining the offer to policyholders and annuity contract holders on Aug. 27. MetLife has about 9 million individual policyholders.