I'm amazed that no one mentioned the biggest benefit of AppleCare. With your iphone, if it needs to be replaced you can walk into any Genius Bar and get it replaced under warranty. If you can't get to a genius bar, they will advance replace it via courier/fedex/etc. I find this valuable as when I got my 3G iPhone, it had issues connecting to the 3G network. Apple charged me $39 for "Advance Replacement", otherwise I would have had to ship my iPhone to them and wait for it to be replaced.
The iPhone is the core of my life, so being without an iphone for the quoted 5 days that SquareTrade says their "guaranteed" turnaround is, would not work too well for me.