Need new phone- have insurance- can't afford

If it's not "damaged" just an internal failure then you don't pay the full deductible.  If you go to a store they can tell you and start the process if it would be warrenty replacement versus a damage replacement.  The insurance covers both situations.

If it is damaged then yes the $175 would apply.  As for payments if that phone is already on an existing EIP you can't start another one for that line until that phone is paid off which you are still responsible for.   If you get another phone and add it to that line I would stop paying for the insurance because if you don't file claim for the damaged/broken phone within I believe it is 30 days or you add another phone to that line the insurance will no longer cover your iPhone.