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Here's what the premium plan covers:

defects in parts and workmanship
accidental damage (including liquid damage)
power surge
loss or theft
normal wear and tear


Bear in mind that there is also a $150 deductible in addition to the $7/month plan as well to have your phone repaired/replaced - it does not mean you will get a replacement phone for free.

You may also want to look at the Terms & Conditions (PDF) for the Smartphone Care Premium package.
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