I applaud you for your insistence on having the work permitted and inspected.
That being said, there is no issue with respect to insurance coverage, permitted and inspected or not. If your house (heaven forbid) burns down as a result of un-permitted or un-inspected work, the insurance carrier still has to write the check. As long as the fire wasn't arson, fire is covered loss, and the insurance carrier is on the hook in accordance with the legally binding insurance contract.
I have yet to see a homeowners or (building owners) policy have an exclusion for un-permitted or un-inspected work.
Remember, just because work is permitted and inspected does not guarantee the house won't burn down either. As a practical matter, particularly if a home or building has changed ownership a number of times, who is to say what work was original, what work was done, permitted, and inspected as part of renovations in say 1965, then in 1980, and again in 1995? Who knows what was done over the years.
What if un-permitted work was done prior to your parents taking ownership of the home? Does your insurance company rip out the walls and inspect the wiring as a condition of coverage prior to binding? Of course not. If previous owner(s) had un-permitted or un-inspected work done that resulted in a fire, do you think the insurance carrier would have any legal recourse against the prior owner(s)? Again, of course not, the previous owners aren't even a party to the insurance contract!
Remember, just because some bureaucrat signs off on a job doesn't necessarily mean it's safe - or even code compliant for that matter. You've read enough about inspectors here. Heck, here in NYC if a job is red-tagged, all you have to do is fill out a "self-certification" form and mail it in... no questions asked, no further inspection ever follows. There have been a lot of abuses of this process by unscrupulous contractors, but the practice continues.
Joe
