Can I use an iphone that was reported lost?

I recently shattered my iphone and I'm trying to get a new one from my insurance. The deductible is 175 and i have to send my iphone back to the company. But recently someone offered to buy the shattered iphone from me for the price of my deductible. I'm a college student and money is rough so this sounded good to me, but If I report it lost will t-mobile blackmail the IMEI? Can my friend get charged for using a phone that was reported lost? In other words do they even care about tracking down lost iphones

By law, the broken phone belongs to the insurance company, not you. If you don't return it, they will charge you the full amount for the replacement phone & blacklist the old phone's IMEI. If you don't pay the complete replacement price after not returning the old phone, they will blacklist the replacement phone's IMEI. And you will STILL be obligated to pay off your contract. You are contemplating fraud & theft by conversion. They're a lot better at this than you are, else they wouldn't be in business for very long.

Obviously yes, you won't be able to use it for phone calling once its reported.

You are technically committing a crime of fraud, so of course you should not be using the phone and would not recommend doing this. You're paying for the total replacement, possibly paying extra penalty fees, and you will most likely be kicked out of the insurance company.