Suzanne Choney of MSNBC has written an extensive article on smart phone insurance (get the full article here).

The article draws heavily on comments by UCAN Advocate Sue Macomber. Macomber works for UCAN's Fraud Squad where she takes (and helps resolve) member complaints about wireless and landline phone companies.

Sue's advice? 

If the phone is costly (i.e. over $500) insurance might  be a good idea, but probably isn't a bargain. In fact, in the event your phone dies, it is probably cheaper to simply buy a new one on e-bay than pay for insurance.

Buyers should be aware that the damage may be covered by their homeowner's insurance, and that there are alternative insurance plans, such as Safeware  available that aren't offered by the carriers or their agents. Another vendor, Squaretrade  offers extended warranties on electronic equipment, but will not cover your phone if it is lost or stolen. 

The article lists four major "gotcha's"with wireless phone insurance.

1 - Your old phone may be replaced with another old phone (i.e. refurbished)

2 - High deductibles - some plans want you to pay as much as $125 on phones that aren't worth that much to begin with.

3 -  Most plans charge $50 to $60 a year.  Given the high insurance costs and the high deductible, you will likely pay as much in premiums as you would to simply buy a new phone.

4 - For costlier phones, such as the iPhone ($699) AT&T, will not insure it.   Apple offers an extended warranty good for two years after purchase for $69, but the plan must be purchased before Apple's 1-year warranty expires.

Here is how the story closes:

"If you decide not to buy insurance
or additional warranty coverage, Macomber of UCAN recommends keeping eBay in
mind for searching for a replacement device, especially if a phone's warranty
has expired.

'You can go on eBay and cause
yourself less aggravation, get a new phone and sell your old one,' she said"