There should be some sort of warranty on the phone, I have no idea how long it will be. I know if you buy from a Verizon store, you have 10 days to return the equipment and get out of the contract without paying the ETF and only paying for the service you already used, but I'm almost positive there's a longer phone warranty. It might be worthwhile for you to go to a Verizon store and ask them, then tell them you have to "Think it over" and go order at Amazon. The VZW employees are usually helpful and friendly.
I really think the $2/mo for defects is a waste of money. I've NEVER had a cell phone that I would have used that on. I don't know anyone who has. The only time a cell phone breaks is usually your fault (ie: drop it in the toilet/etc). In that case, the phone insurance will cover it.
If you have to buy a new phone for whatever reason, what you'll pay varies. A year after you've been with VZW, you can buy a phone with the "New customer pricing" - which is what you're getting now. After two years, you get the New Every Two discount on your primary line (but not the second line). I think that's $100 off new customer pricing on a phone. If you don't fall under any of those catagories, you're going to pay full price for a phone, and they're expensive. Expect to pay $200+ from VZW. You can buy a used phone on eBay and usually pay less (thats what I did to get my VX6100, although there was nothing wrong with my old phone, I just wanted a backup phone since this is my only phone line).