Knob and Tube with three breaker boxes in Little Rock Triplex

[Warren A.]

Hi , I am in closing stage of a triplex in Little Rock .  It has three 100A breaker panels in the back of the home.   3rd party inspector noted knob and tube in the attic and highlighted it's risks.  I've done a search on BP and have read a number of threads strongly recommending replacement of knob and tube so I am familiar with the safety concerns.   

I contacted our insurance broker and to my surprise, the reply was " There is not a limitation on coverage for wiring. So there is no issue."   So that's nice from a liability perspective but I am still concerned about tenant safety.

I confirmed seller will not replace knob and tube at their expense and their comment,  "Per the electrician - there is active knob and tube wiring in the attic. It appears to be in good condition and he is not seeing any spots missing insulation. He is giving this a 9 rating for the condition of the wire on a 1-10 scale."

The 3rd party inspector also informed me that while K&T is a red flag, it's not illegal .

Additional context:  We like the location and upgraded all the window AC units to one central unit for one unit and mini split systems to the other two units.  So we really want to make this transaction work out.

My questions

1) With the breakers, is that considered a layer of safety in case of overload ?

2) If I don't replace K&T now, are there any additional precautionary measures I should take to further insulate the wiring?  

3) Are there other questions I should be asking the electrician to ensure safety?

Below snippet from inspection report and photos of K&T in attic ,

[JD Martin]

I will say one thing - the insulation on that K&T looks fantastic, better than about any I have ever seen. I can see why they gave it good marks on visual inspection. The one picture I can't tell if it's bending around what looks like a dryer vent, that's not a good situation. That attic must have had great ventilation; heat and dampness tends to break down the covering over the wire. If the room stays cool and reasonably dry (not desert dry) and the wires don't have a lot of hard bends often it's not in bad shape.

Breakers are a safety feature for overload but a breaker can't tell if a single K&T wire is getting hot or not. Better protection is an arc-fault breaker, because arcing from missing insulation is one of the dangers of K&T.

As for insulating, obviously anything that looks like it is loose or coming apart I would re-wrap with good quality electrical tape (electricity off, of course, when you do this) but beyond that you want to keep combustibles away from the wiring.