1TB phone using iCloud instead of hard drive storage

You have a couple options:

1. Don't sync with iCloud and if you lose your phone or it is stolen, you'll lose all your data. Or someone enters the passcode incorrectly too often, requiring the phone to be erased and set up again and you'll lose your data as well (this is not a smart option, tbh)
2. Upload the content you want to keep safe to a computer or backup service to avoid the potential loss of data
3. Pay for more iCloud storage and not worry about not having enough space in the cloud to sync your data to

You paid for a lot of storage on your phone, which likely means you want to keep a lot of data accessible. It doesn't make sense (to me at least) to not upgrade your iCloud Storage to accommodate your backup needs.

You're welcome. It's honestly NOT bad to have more storage on your phone than you may need. It's always worse to NOT have enough storage. Once purchased, there's no way at all add memory to an iPhone.