I’d treat zero N1 and zero N2 as severe damage if there is an associated swing (otherwise it’s a failed indication in my book). And doing the severe damage separation memory items is not unsafe if an engine is failing/ has failed. I am not a TRE or a TRI or a trainer in any respect but I personally think the instructor was wrong to stop the simulator at that point. Have a discussion in the debrief by all means but not during the exercise.