Unless there is a wiring mess in the house you are going to look at, I'd suggest the new owners consider getting quotes from other insurance companies. A lot of this confusion comes from loyalty to an Insurance Agent.
I work in Minneapolis / St. Paul and the seven county metro area. The core cities have late 1800 to 1925 housing stock. The original wiring is still in service and in most of the buildings is K&T. K&T's weakness, IMO, is the insulation. Where exposed in basements and attics, humidity and temp cycles degrade the insulation. Over fusing and subsequent overloading will warm the insulation enough, long enough to make it brittle. If it cracks when flexed, it's toast. As long as there is no history of overloading, the K&T in the interior walls has been very stable, in my experience.
I work a lot on old K&T systems and find that it is a sturdy stable (although limited) system that is standing up well under the test of time when not abused.
Splicing of modern wiring can occur at any outlet or light where the unswitched hot and neutral are present. Installing a box at the light may be necessary, as it may not yet have been done. (I've seen my share of modern luminaires supported by drywall screws shot to the lathe.)
Bottom line. . .to the home owners, even if the insurance of existing cared for K&T costs $xx.xx more a year in premiums, how many years of saved premium expense will it take to equal the cost of replacing the existing core wiring system of their new "old house"?