I currently have O2 Premier Insurance on my iPhone 3G that is £7.50 p/m. I have noticed the o2 site now quotes £10 a month for this service (£120 upfront fora year for PAYG).
I rang to ask if i upgrade by buying a PAYG iPhone 3G S, as suggested on o2's site, can i transfer my insurance. As expected i was told no, as the new phone is a PAYG phone and comes under a different insurance policy/band. She also noted that if i buy a PAYG iPhone + PAYG insurance, the insurance will be invalidated if i use my contract SIM, as it insures the PAYG phone as a package. This is standard industry procedure.
Obviously, u can insure the PAYG one and if you need to claim say that you were using the PAYG SIM. They could check if this is true, but unlikely. And yes, technically it would be insurance fraud. But the only thing people need to be aware is that unauthorised calls wouldn't be covered on a PAYG policy, and if it was lost or stolen you may need to pay for a new SIM as the contract SIM wouldn't be covered by the policy.
So i am planning to (unfortunately) cancel my cheaper policy and buy the PAYG variant.
