There are different ways to insulate a flue pipe. You can of course use a twinwall wall flue pipe which comes with a layer of insulation wrapped around the inner pipe. If you have a larger chimney breast and you plan to drop a liner down it, you can suffer from heat loss out of the liner which can affect the performance of the flue pipe, especially if it is an external chimney breast exposed on several sides.
An insulated and lined chimney will work better than a non-insulated/lined chimney. A large, exposed chimney will contain a lot of cold air, meaning that if you connect a stove to the bottom of the chimney and light it, the hot gasses being emitted have to displace the denser, cold air already in the chimney. The result being that it will take longer for your stove to get to temperature as much energy is wasted in displacing this denser layer of cold air, and can also lead to smoke coming back into the room.
A liner will help give some extra height to the gasses, heating the metal of the liner itself rather than the cold air and slowing in the process. Insulating the liner with a blanket or pouring vermiculite granules into the void around the liner will help to fill the air gaps and there will be less space for cold air to be trapped. So a chimney that is both lined and insulated is doubly effective at venting the gasses, and hence more efficient.
On a second example if you have a chimney that is the middle of a house or between two houses in a semi-detached property. Say that chimney has a 8" cross sectional diameter going up, and your appliance has a 6" outlet, this will leave you with a 1" gap between the liner and the chimney walls. While this is enough space to be able to get a blanket or some vermiculite down, the benefit will not be as great as the example above as there is minimal space for cold air to be trapped inside the chimney and as there is warmth coming from all sides the chimney as a whole will be much warmer than the example above. In this instance insulating is probably not required.
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