Upon further review:
It looks like Apple Care only covers software issues or phone malfunctions. It does not cover damage.
Square Trade covers damage and extends the manufacturer warranty to 2 years.
Unfortunately, neither cover theft. That sucks.
It kind of sucks that you cannot get traditional phone insurance to cover everything.
Here is what square trade's coverage is per their website:
What is Covered?
* 2 years of coverage: The SquareTrade iPhone warranty covers your iPhone for 2 years, starting on the date of purchase.
* Accidental Damage from Handling (ADH): 80% of all iPhone failures reported to SquareTrade are caused by accidents. The SquareTrade iPhone warranty is the only coverage option that protects against drops, spills, and other accidents!
o Deductible: There is a $50 deductible when claiming on an accidentally damaged item (e.g. drops, spills). If your issue falls under the standard warranty terms (i.e., a mechanical or electrical failure), no deductible applies.
o Exclusions: If your warranty is bought on the same day as your iPhone, then your coverage begins immediately, if you buy your warranty on a later date than your iPhone, then accidents occurring in the first 30 days are not covered. ADH does not include loss, willful damage or damage occurring through gross misuse of the item. The damage must have occurred unintentionally while the item was being used as intended.
* Extended coverage of the manufacturer's warranty: The SquareTrade iPhone warranty also extends the same coverage as the manufacturer's warranty. This covers all mechanical and electrical problems that arise out of normal use. This includes most hardware failures and power/charging failures.
o No deductible: If your iPhone fails because of a mechanical or electrical problem during normal use, there is NO deductible to claim.
o Battery: If the iPhone battery life drops below 50% of the original, it's eligible for a replacement.
* All warranties sold by SquareTrade are covered by AmTrust Financial Services, a company rated A- by A.M. Best.