When I bought my iPhone 5 last year, the full retail price of the phone if you didn't have an upgrade to use was $799 IIRC. Given that I have just the one line on my account and knowing that I'd be on the hook for that much to replace my phone if I were to break it over the two years till I got another upgrade, $99 upfront for AppleCare plus a $50 deductible seemed like a relative steal. Two years provides A LOT of opportunities for something unfortunate to happen to a phone.
I don't know who would ever pay $799 for the phone. If they tried to charge you that, just cancel and pay the penalty of $300 and get a new phone from a different carrier (same #) for $199.