If I can suggest, I would suggest exactly what XR-vessels or DGIV do. The simulation continues with the caused failures but a message displays showing that you are dead, and what happenned (ex: Something exploded, incorrect attitude on reentry, incorrect docking causing vehicle breakdown, cabin pressurization...). Of course, as Urwumpe says, this would happen only in deathly situations. If the situation is not deathly the simulation would continue with the damaged systems.
Bassicaly what I want to say is please, no AMSO´s white angel changing your focus and climbing vertically to a scape trajectory.