Broken iPhone exchange.

Is it possible to upgrade the phone during this process?

No. You get the same model phone & have to turn yours in.

TPlayer369 wrote:
Since the Applecare does not protect against "accidental damage", which makes no sense,

It makes perfect sense - its clearly spelled out as a manufacturers extended warranty, not an insurance plan against the actions of the clumsy or unlucky. In that regard is is no different to any electrical items extended warranty. If your TV breaks down during the covered period, its covered. Put your foot through the screen, and you have to hope your home insurance covers it.

TPlayer369 wrote:
Yes, that does make sense but the way I see it if there is a problem with the software or the phone itself, it should be covered anyways, since it was their fault in the first place.

The warranty does cover software or manufacturing defects but thats not what you are asking for. Your clumsiness is not their problem - how could any manufacturer cover your breakages ?

And most other places/phones offer insurance for accidental damage (such as dropping it in water or something like that) but they do not. Just really inconvenient..

Apple may not sell it but the carriers certainly do and they try to sell you it every time you walk in the shop. It was your choice not to buy it !

if there is a problem with the software or the phone itself, it should be covered anyways, since it was their fault in the first place.

It is covered. That's the warranty. Warranties do not cover accidental damage any more than your car's warranty covers you driving it into a tree. If your complaint is that you claim there was a problem before you dropped it and that now Apple won't honor the warranty, how is Apple to know that any problem you had was there previously and was not caused by the damage? Try having a pre-existing problem with your car's suspension and then getting your car company to honor the warranty after you drive into said tree. Just won't happen.

And most other places/phones offer insurance for accidental damage

Many cell carriers do not offer insurance for other smartphones such as the Blackberry either. But did you ask your carrier if they offered insurance?

Perhaps your homeowner's insurance would cover the damage, or if you purchased the iPhone using a credit card your card issuer may offer accidental damage protection.