Knob and Tube wiring (K&T) is a method of electrical wiring used from the late 1800's through the 1930's. It is a 2 wire systrem that used ceramic knobs nailed to the framing and ceramic tubes mounted in holes drilled in framing to allow the wire to pass through.
By modern electrical codes it is considered unsafe. The safety problems arise mostly in kitchens and bathrooms because of water. There is no 3rd wire ground to prevent electrocution. Other issues are the knobs and tubes get broken over the years as well as the rubber or cloth insulation on the wire will decay, exposing bare wire. Modern home insulation likely covering the K&T will not allow the wire to cool, potentially causing a fire. K&T also has a difficult time carrying the electric load in houses today. When it was installed we did not have the many "high energy using appliances" we have now.
But can I buy Insurance on a house with K&T?
Most "Standard Market" insurance companies will no longer write new policies on buildings with K&T. Even some of the the "Non-Standard Companies" have begun to deny coverage if K&T is present. In most cases an expensive electrical upgrade is is necessary before a company will write a new policy. Depending on the house, upgrading the electrical system can be as high as $30,000 or more.
If you are considering buying a house with Knob and Tube wiring contact your insurance agent before making an offer. She will be able to tell you if it can be insured.