Most people are suprised to find out that AT&T does NOT offer insurance for the iPhone.  Apple does offer a product called AppleCare that will provide some additional protection for your iPhone.  For $69 you extend your 90 day warranty to a fully 2 years of coverage.  This will extend your technical support on how to use the devices as well as your hardware warranty in case the device malfunctions.  You will also get some extended coverage on your battery and get a replacement as the battery starts to fade.  AppleCare does NOT cover you against accidental damage though, which is usually standard coverage when you get insurance on other phones from AT&T.

AppleCare Details
AppleCare FAQ

Would I buy AppleCare?  Not a chance.  I really don’t see much value in AppleCare.  Since AppleCare does not cover against accidential damage, I find the coverage pretty limiting.  The only selling point for me is the battery replacement, but I figured I would take my chances and see how well my battery holds up.

Your alternatives are pretty limiting though.  The only other way that I found that you can insure your iPhone is through a company called SquareTrade.  The coverage looks pretty decent as it extends the normal warranty and covers you against manufacturing defects, but it also covers you for accidental damage.  When making a claim for accidental damage, you will be charge a $50 deductiable, but this is pretty standard even with insurance provided by AT&T.  The pricing for SquareTrade is very reasonable, 8GB $76, 16GB $96, and 32GB $115.

Has anyone ever used SquareTrade?  Let me know by leaving a comment.