Your going to want to get your hands on the NEC code. They don't prohibit the continued use of knob and tube but do prohibit insulation on or around this old wiring. Once you read that code language it will clear things up for you. DOE weatherization programs and any reputable contractor should be aware and follow that guidance.
Dittos on Cory's point
DOE still allows for it to be used even in retrofits http://blog.sls-construction.com/2011/national-retrofit-workforce-g..., though in most cases that could be politely considered fool-hardy.
BPI simply states: Insulation may not be installed where live knob and tube wiring exists
If for some reason you don't want to automatically go it should be removed or deactivated - make sure you get a licensed electrician to look at it & make sure you keep anything flamable away from it
Most houses with active K&T are going to have a fair amount of it on the attic floor going to ceiling lights. An electrician with a helper can generally take care of a lot of that in a day's work, replacing with romex and fishing it down to the switches in most cases. Then you can insulate...
Yeah, that's the best, of course. I'm wondering what's behind the practice of isolating the KT with conduit (half-conduit) or boxing the runs in with _____!? It's being mentioned in some of the markets I am working in, but I can't locate the science (or empirical data) behind it. Thanks for the response.
Jan here from Pacific NW Seattle,
We have a competent licensed Electrician, go out and inspect.
IF and when they go over it, they write a report for us, that the wiring is healthy.
The report identifies the circuits they have looked at, and relate wiresize and breaker/ fuse
amp values, as well as type of fuses.
It is probably covered in the NEC code how to deal with K&T wiring.
Way back at the start of Weatherization in PA and NY agencies and contractor ran into lots of
K&T wiring in rowhouses.
I remember sessions at WX conferences where they would adress this issue in depth, look for resoures in PA'
for more detailed data.
K&T wiring is designed to be open air conductors. Covering them can allow them to over heat and degrade the insulation. When it was manufactured they didn't have the thermoplastic insulation of today's wire. The national electric code also prohibits is. California did allow covering it at one point but I'm not sure if they still do. The wiring is also subject to damage because of the way it was run so when it's covered people working or storing stuff in the attic could damage it and not even know it. I have heard some jurisdictions allow the wiring to be surrounded by a wood box then allow the insulation over the top of that as long as the wiring is not compromised which K&T usually is. The other side of it is that if there is old wiring there is probably issues. These systems are ungrounded and usually have fuses for over current so an upgrade is likely needed.
Just bought a house in Portland Oregon having moved here from Chicago. My house in Chicago builit in the late 1870 (after the Chicago Fire was all KT, since I was doing a total gut , it was not an issue. The house in Portland was also KT and working fine untill I applied for Insurance and was denied because of the KT. During the course of removal the wire(insulation) disinentigrated when moved. I feel more comfortable wth the Old Technolgy gone. Althought I will admit if it wasn't an Insurance requrement I would have left it alone. execept for some minor re lighting and receptacle replacement
See PA weatherization college report how they deal with K&T.
4 western states CA, OR, WA, ID that are covered by BPA have exemptions
in state laws and regs that allow insulation applied over top of healthy K&T
under prescribed conditions, report, inspection, fusing correct, signage etc.
Under NEC code it is forbidden to cover existing K&T wires under insulation.
NEC can be adopted and amended by local jurisdictions .
K&T is proven to NOT be the cause of many home fires insulated or not.
Knob and Tube electrical wiring was installed in homes until the 1940s. It consists of copper wires insulated by a flexible fabric sleeve. Ceramic “tubes” allow the wires to pass through joists and studs; ceramic “knobs” hold the wire in place, protect it, and give it structure. Knob and Tube wiring differs from contemporary wiring in (at least) three important ways:
If properly installed and maintained, knob and tube wiring can be as safe as contemporary nonmetallic sheathed cable wiring. Any time you are insulating over existing electrical wiring, the wiring system should be checked for integrity and safety to identify potential fire and/or shock hazards. (See Faulty Wiring section for more details) Checking the integrity and safety of knob and tube wiring requires particular attention. If a home has knob and tube wiring, you know that the wiring is at least 70 years old (as of 2011). Even if it was initially designed and installed properly, old wiring has had time to degrade and to have undergone modifications by untrained personnel. Moreover, electrical demand of appliances in contemporary homes is significantly higher than that of homes of the 1940s, meaning that much knob and tube wiring is now undersized.
The National Electric Code requires that attics and walls with knob and tube wiring not be insulated in such a manner that the insulation envelops the wire. However, based on their own findings, multiple state and local codes have amended the NEC to allow for insulation that envelops knob and tube wiring, given that certain conditions (including inspection and certification by a licensed electrical contractor) are met. States that currently provide conditional allowances for installing thermal insulation over knob and tube wiring include: Nebraska, Washington, Oregon, and California.
Because of its age, knob and tube wiring should be inspected regularly for safety and integrity. If retrofitting a home with knob and tube, determine whether or not your area allows the installation of insulation over knob and tube wiring. Some professional institutions require the removal of knob and tube wiring, irrespective of what local code allows.
If the electrical code in your area does not permit insulation over knob and tube wiring (i.e. they follow NEC 324-4, unaltered), then you must inform the homeowner that you cannot install insulation until an electrician replaces knob and tube wiring with nonmetallic sheathed wiring.
If your area does allow insulation over knob and tube wiring, consult the pre-conditions that must be met for it to be permitted. Typically, the requirements include an inspection of the condition of the wiring by a licensed electrician and installed over-current protection provided by a properly-sized Type S fuse or circuit breaker. [56, 57]
Keep in mind that in choosing to insulate over knob and tube wiring, you’re effectively committing the homeowner to that wiring for the life of the insulation. Any insulation installed over knob and tube must be non-combustible and non-conductive. Spray foam insulation should never be used to cover knob and tube wiring.
Overview of retrofit issues with knob and tube wiring:
State codes conditionally allowing thermal insulation over knob and tube wiring:
 Current (2011) cost estimates of rewiring an entire house start around $3000 and can exceed $10000, depending heavily on multiple factors including location, condition, age, and size of the home.