Since the insurance companies won't cover for K&T, we replace it.
The only thing we've found to be bad with K&T (other than the fact is has no ground) is in ceiling light boxes. Over the years heat from the bulbs makes the insulation brittle and crumble off when you touch it.
There is one other issue that's been brought up: was K&T wiring ever designed to have insulation around it? Most homes of the K&T era weren't insulated, but added it afterwards.
When clients ask if it's unsafe, I explain that although it still works, it's 50+ years old and due to be replaced with modern grounded wiring before problems can arise.
