Insurance Claim and Upgrade eligibility

Apparently your phone bill is outrageous like mine so you don't hardly notice an extra $40? If your phone was paid off then they made an error and you should be blowing their phone up until you get it resolved.  It does sound like they did it as an upgrade but taking your $125 for a deductible shows an error on their part.  If they replaced your phone with another comparable one, that's on them. If they told you this was an upgrade and you agreed, demand your $125 back.  

I think the answer lies in what that extra $40 charge is for. What does your bill say it is for? As for an upgrade, hopefully you realize there are no 2 year contract upgrades anymore. All ATT phones are now sold at full retail price. Upgrade eligible only means you are eligible to buy a phone on an installment (Next) plan, which you might still be eligible for anyway. 

As @sandblaster suggested, read your bills, starting in August and September.   Without knowing exactly what the $40 is for, or even if your bill increased, its guess work.   

My gut tells me a $40 increase is not an installment payment, that would be an unusually large installment.   I would look for other changes in service.

 FYI in 2014 the upgrade options with Next were different. My sons had installment plans that were 26 or 28 months.  

@2213ana   As asked, please check your account to see what changes occurred.  

It is entirely normal for Asurion to replace a phone they don't have, with a phone they do have, in this case, a newer phone with better specs.  They do not charge extra for this..

This is unlikely to be related to the change in your bill.   

The only way to determine the cause of increase, is to actually read the bill.  Please go back to August bills to see what your regular payment was.  Then look for changes to data plan, new devices, etc.  

Now that you know, call ATT right away.  There should not be an installment for an insurance replacement.  There is a one time deductible.  

$40 for phone installment sounds way to high. I'm betting it's a $40 access charge for a phone under contract.