Work Done Without Permits - Risk & Options?

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I have a question for all of you investment property veterans: 

We are currently under contract to buy our first investment property, a duplex built in 1895 with one unit on the 1st floor and one on the 2nd floor.  The sellers renovated the attic to add bedrooms and also added electric heat to that floor...all without permits.  We opted to purchase the property in our individual names and get lots of umbrella insurance, but I'm very concerned that if there's ever a fire, our insurance would refuse to cover it and we could be held personally liable.  We are past the inspection and financing contingency periods under our contract.  

In your experience, what's the risk here?  What are our options? 

I can think of a few:

1. Ask the sellers to pull permits on the work.  They will likely tell us no, but it's worth a shot.

2. Pull the permits ourselves after closing and cross our fingers that it won't be too costly to get it up to code... and that the inspector won't find any other "surprises."

3. Change course and purchase the property in an LLC (and pay the extra interest on our mortgage rates and perhaps delay the closing).

4. Terminate the contract.  We would lose our down payments, inspection fee, and the money already spent related to the mortgage process.