Cost of replacing a broken or stolen iPhone?

I'm planning to buy the iPhone when it comes out on O2 in the UK, but I'm a little unclear about whether the cost of the iPhone itself is subsidised or just a standard purchase.
In the UK it's common to get a phone free or cheap when taking out a contract. If the phone gets damaged or stolen, then the cost of buying a replacement (if it's not insured) is substantially more than the original price.
Does anyone know what the situation is with the iPhone - anyone using AT&T had such an incident? Can you go out and buy another iPhone and carry on using it with your existing contract, or do you have to pay a higher price for a replacement.
Along a similar line, if Apple were to bring out a better version of the iPhone in future, would existing customers have to wait for their contracts to end before getting the upgrade, or could they simply buy the new phone and continue with their existing iPhone tarriff?
Message was edited by: bilbo_baggins

I would presume that the cost of replacement is just the normal cost of the phone - but there is no information to confirm this - that is why I'm a little unclear.
The reason for wanting to know is so I can decide on whether it's worth considering insurance, cases etc. If it's simply a case of buying another iPhone then fair enough - if it turns out that you cannot buy another iPhone without signing up to an additional contract (and so paying two lots of £35 per month) or paying vastly more than the initial purchase price for a replacement, then I would be far more concerned about protecting my iPhone.
Really it's a balance between cost of insurance vs risking it, and the bulkiness and inconvenience of using a case vs increased risk of damage.
Message was edited by: bilbo_baggins

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