Surely with that budget you'd be better off with an LS1 conversion. Also since the VT came with the LS1 you would be mad not to do it.
Buy a wrecked VT onwards LS1 and 6 speed SS for about 3 grand, 1500 or so to get the work done, a grand for a dyno tune and you're looking at 300 flywheel KW easy with plenty of headroom later for mods. Sell the bits you don't need and you ought to have enough to drop a cam into it too, the VT 304 and 5 speed is much sought after, probly 2500 together minimum.
Also reliability and fuel consumption heaps better and as far as insurance goes I've always used Shannons, they don't give a **** what mods you make as long as you tell them and in the event of an accident they let you choose your own repairer or will sell you back your "write off" (as happened to me because of cost not amount of damage) for 200-300 bucks. They also do agreed value and pay up promptly when **** happens.
I love my 304 but if I had 7 grand to spend that's what I'd do.
GOD DAMN IT, SUCKERED AGAIN BY A 5 YEAR OLD THREAD.