I think the reason why phone insurance companies are even considering raising the deductible for claims is because of people that say "just have them replace it." It's not ethical to buy insurance and make a claim so soon knowing that the problem existed before you made the purchase to insure the phone. That is called insurance fraud. I'm glad you have decided against that course of action. Now, if you had insurance from the get go, then of course you would make a claim, but not now. I would either buy a new phone or replace the screen and digitizer myself. You can check ebay.
Also, a couple weeks ago, radio shack was having a deal on Sprint Touch phones. They were going out the door for $29 + tax with an extended service contract. In my opinion, that is almost worth it, so long as you are currently on sprint and you don't mind giving them another 2 years.
You can also check with Best Buy. The service they host, Geek Squad, can usually fix things like that for relatively cheap compared to the manufacturer. They quoted me $100 to replace an LCD screen on my digital camera, while the manufacturer quoted me $150. It's always worth the time to just ask.
Good luck.
EDIT:
I found a website that sells the LCD and Digitizer for $29.99:
here
You can also just buy the Digitizer alone if the LCD is fine from
ebay