Engine thrashed - what to check for damage?

Hi all,

My 1981 KZ750 LTD was stolen, used for thrashing about and burnouts, and then dumped a few weeks ago. It was recovered very soon after and sent to the mechanic for an insurance quote. I spoke to the mechanic who said everything looked surprisingly good (needed a new rear tyre, clutch lever, ignition barrel primarily), but that apart from a few scratches it seemed good. He said the engine seemed fine.

Then my insurance wrote it off - they deemed that a 40+ yo engine with no rev limiter being thrashed for burnouts would probably be a liability, and would rather pay me out than risk ongoing engine troubles. I'm really quite surprised, especially considering the mechanic thought the engine seemed fine, and the payout would probably cover much of a rebuilt anyway ($3500).

I have salvage rights on the bike, so I'm pretty tempted to just pay for the new tyre, barrel, and clutch lever. But before I do that, what should I check on the engine? I've started it and given it a few revs and it 'sounds' OK. I'm thinking a compression test and an oil change to pan for metal in the sump. Anything else should I be checking? What typically 'goes' on these engines if they are thrashed hard?

If it starts and runs well, that should tell the story.  The engine is designed to run at redline for an extended period of time without harm. 

Take the clutch cover off and check for any burnt warped clutch steel plates, if it was overheated and launched at a high RPM you may see some damage.
Worth a gasket in my opinion.
Most times you will not see anything, those clutches are so bulletproof. I have had to replace steel plates from time to time on my 650 drag bike, usually its only 2-3 plates.
Its also a good idea to take the clutch rod out and make sure the end is not mushroomed into the ball bearing.
Lube and adjust the clutch cable.