Depending on how often you use hot water, regardless of the type of heater you use, the water in the lines will cool off eventually, insulation only slows the loss of the heat, it cannot prevent it.
Using smaller supply lines, if multiple things are being used at the same time, you'd notice the loss of flow and pressure drop.
Before I installed a recirculation system in my condo, it would take almost 2-minutes to get hot water in the shower. With it, about 5-seconds to purge a bit of the short line.
Most recirc systems, if you don't have, or can't provide a dedicated return line, use the cold line as a return. This puts at least warm water there. In my case, the way I have it set up, flushing the toilet pretty much purges that warm water and when I get to the sink, I have both hot and cold. The one I have has an adjustable control for the pump to set your desired temp, and I have mine set fairly low...it gets me warm immediately at the sink, but hot at the shower (since it's closer to the water heater). If you can add a dedicated return line, you eliminate the (slight) inconvenience of hot/warm part way into the cold lines. Mine is on a timer, so only runs while I'm normally up. The pumps used for this are quite small and do not draw much power. If your supply lines are insulated, you don't waste much heat, but you do lose some.
