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Reclaiming insurance on loans

Hi, my bank (Lloyds TSB) has advised me to get insurance on loans (even up to recently), so that if I get ill, I am covered. I have always been up front with them that I am self-employed, and yet they have sold me this. I found out from a friend recently that as a self-employed person, the insurance is completely redundant and will not cover me in the event of illness - is this true?

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