I am getting ready to start a house project. The house is about 4k sq ft. They removed all the sheetrock because of the asbestos in it. Now they want to get everything grounded. The house has the old silver romex with no ground, however the kitchen is grounded. I'm not sure when the house was built. It has a 200a ite breaker panel with main fuses.

I was planning on running a ground wire throughout the structure to ground everything. I would love to rewire it and probably could if I advised it, however the existing wire is in good shape and I don't want to oversell it.

However, most of the upstairs of the house is 2x10 ceiling rafters to the roof. They are going to put spray insulation in the rafters. Is this older wire okay to be covered with this insulation? I don't see a problem but want to get a second opinion.

IMHO, I would do a rewire as opposed to running a 'ground' (EGC) conductor.

Issues with conformance with the interpertations of compliant NEC methodology may arise with your plan. One may be that the EGC be run within the cable/raceway with the circuit conductors. Another may be the method used to enter the boxes with the single conductor. A conversation with your AHJ may be a good point, before you proceed.

As to the insulation, you should check with the mfg to determine if it is not detremental to the outer jacket.

Again, IMHO, I would sell a rewire. The sheetrock is down!

In order for a bonding wire to work it must be run with the power conductors. The temperature rating of that wire is 60 degrees so no new light fixtures can be connected.
I think it would be false economy to add bonding rather than replacing it. You make a little more and the old wire buys the beer.

Also you can "easily" upgrade for multiple switch locations, extra conductors for seperating ceiling fans and lights, adding new circuits for bathrooms, kitchens, etc., dedicated runs for TV / Video / PC locations, adding smurf tubing for wall mount flat screens, recessed lighting, etc.

I think you're stuck with a complete replacement of the wires, for a couple reasons.

You're not clear on the wiring method used. You're not allowed to bury knob & tube wiring in insulation. You can foam in NM without worry - NEMA has a research paper on this.

If the older wire is of the rubber & cloth insulated type, I'll bet you find it brittle at every light fixture- from the heat of the light bulbs.

As I read the code, in a remodel such as yours you would need to bring everything that's opened up to current code. This means additional circuits, neutrals at switch boxes, service change, etc.

Reno:

FMI (for my info) does that NEMA paper reference 'old' Romex. Woven cloth outer sheath, silver color, emits black dust if/when you touch it.