That all depends. I've always insured my bikes with state farm. I always bring the bike to them and the nice lady comes out and takes a picture of the bike and then puts it on their file. From there I can go and do whatever the hell I want to the bike and for the most part no one is any the wiser. All that being said, I'm fairly confident you can find insurance for the bike just by saying its a DRZ400. If by some chance, one day you are involved in a terrible motor vehicle collision, or you strike and kill a pedestrian. That is the time when your insurance might just drop the hammer on you and not cover it. I know for a fact State Farm + others have paid out claims to people who had taken stock Honda Civics and put a Prelude engine in them and then cracked up the car, writing the whole thing off and getting a cheque from them at the end of the day. I think in that case you would be out whatever cash you paid for your upgrades.
My two cents, that bike looks pretty cool, if you can talk him down to $4800-5000 I think you would have yourself a great deal, $5,500 isn't outrageous considering what has been done to it. That bike would give you 10,000km of fun before you get completely bored, and hopefully in that time very minimal mechanical upkeep.
