I think it would be really cool to have an option where the insane can indeed see strange nightmarish creatures, but are not/cannot be killed by them. So either not hostile and just lurking, or actively trying to attack the player but just doing no damage at all.

I've been using this for an RP survival pack and it works wonderfully! However getting close to insanity triggers the inner entities to show up and eventually kill you. I love the idea of the insane seeing inner entities, however them just killing the player makes the expirence fairly short lived.