One of my friends did exactly the same thing recently. He'd no insurance, but it "only" cost £50 to repair it locally. If 02 are willing to do it though, so much the better...
There are many reasons why I refuse to buy an iphone or other expensive iphones (unethical purchase for starters), but other reason is what you described, if you break it awfully expensive to fix/replace.
I know what you mean - I had no idea of Apple's terrible record with Chinese workers until I had it... once my contract is up in a year, I think I may switch.
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