From reading your question it is clear to me that you were misled and this has in turn caused you financial difficulties.
You are covered under the Consumer Rights Act 2015 here which means you have a right to expect a service (from the lender) carried out with reasonable care and skill. Furthermore, the service they offer should be “fit for purpose” and “as described”. If it isn’t then you can allege breach of your consumer rights and breach of contract.
They will be authorised by the Financial Conduct Authority (FCA) meaning you must go though the lenders complaints procedure to resolve this - you should not entertain court proceedings until the outcome of this is known and the Ombudsman has made a decision which is not in your favour. The courts view litigation as a last resort.
You should now make a formal complaint to the lender and if that does not resolve the matter ask them for a "deadlock letter", which is a letter giving their final response. Their complaints procedure will be available via their website.
Once you have the deadlock letter the next step would be to escalate this to the Ombudsman - they will investigate and liaise with the insurer which would hopefully result in a resolution and it should also mean your credit record is dealt with in your favour too. They can order the lender to make a financial award for inconvenience if they have acted poorly.
Once you have their final response, you can make the complaint to the Ombudsman here : www.financial-ombudsman.org.uk/consumers/how-to-complain
Or by email:***@******.***
Based on the circumstances, assuming the lender does not uphold your complaint, I am sure the Ombudsman will do. The Ombudsman will look at this case independently and will make a decision based on what happened. Their decision is binding on the lender. If the Ombudsman did not find in your favour, therefore, you then have the option of suing the lender for breach of your consumer rights and you have up to 6 years to bring a claim to the court (the limitation period is 6 years from your date of loss, to when you need to issue a claim).