the below quote is taken from here http://starcitizen.wikia.com/wiki/Lifetime_Insurance
RSI insurance FAQ: https://robertsspaceindustries.com/comm-link/transmission/12820-Insurance-FAQ-And-Update
Lifetime Insurance covers the ship hull and basic equipment only. It does not cover modifications made or cargo acquired by the player after first receiving the ship.
Insurance for upgrades and cargo is separate from LTI or hull insurance and is priced based upon the risk level of the system entered. Above risk level 5, upgrade and cargo insurance are unavailable.
If a ship with LTI is destroyed or captured it will be replaced with an identical model in equivalent condition. The replacement may not arrive immediately - it can take some time. The developers have indicated that the more often a ship is destroyed, the longer the wait until its replacement arrives. A person can avoid the wait by owning more than one ship