Do Flight Simulation Instructors stop the simulator before a simulated crash?
I would say that crashes happen fairly frequently on initial type courses where new pilots are moving up to jets, and mainly on what are called &quot;V1 cuts&quot;, where an engine is failed right at rotation or just after.
Many are not ready for the hard roll you get with a swept wing airplane when it yaws hard and you are slow to counteract it with rudder.  Before you know it, the wing tip is on the ground.  The instructor has to let the pilot try to recover and usually has to let it go all the way.
Otherwise, instructors will normally try to freeze the sim just before a crash because of time wasted waiting for the machine to reboot and having to reconfigure all the settings the instructor has set up for the session. This wastes very valuable and expensive sim time (I was also told it was hard on the equipment, but I'm not sure why).
It's not done to avoid traumatizing the students though.  One basic tenet of training is to make things memorable, so overall, a crash-in-the-box is a plus.
You can get a bit lost in the moment and forget you are in a simulator if the pressure is dialed up high enough (after 4 hours of abnormals and emergencies, you get wound up pretty tight; I used to tell people it was like spending hours in a cement mixer filled with bowling balls), but that effect is pretty superficial and when a crash happens, you know you are on an amusement park ride in the end, and you're not going to wet your pants in your last simulated moment of life.
In fact, aside from the visuals, which on the latest ones are pretty good but still not like a real view, after you get used to it, you start to become more and more aware of the physical differences from a real flight, like the motion sensations that don't quite fit what you are seeing (they really only simulate accelerations and decelerations and short term jerky up/down and rolling/yawing movements with any realism, which is good enough most of the time), and the sound of the hydraulic gear working below you, and that tends to kill the &quot;lost in it&quot; effect even more, and it becomes more and more like an amusement park ride as you go back for recurrent training.