There are two methods of insulating liners, insulation wrap and pour-down insulation mix. If you are relining a chimney for a Solid Fuel (such as wood or wood pellets) application you must insulate the chimney liner with insulation wrap or pour-down mix insulation.
When warm gases meet with a cold chimney liner or flue, condensation will form on the interior of the flue or liner. When the by-products of combustion meet with this condensation, as a result creosote is formed. Excessive creosote build-up is dangerous as it
is very flammable and increases the risk of a chimney fire.
To guard against this condensation issue, insulating will keep the liner warmer throughout burn cycles. Less condensation will form, resulting in less creosote build-up. If you are venting for a gas or oil appliance, you are not required to insulate though it won’t hurt if you do. If insulating for a solid fuel you should insulate with at least a 1/2in of insulation. Gas and Oil needs only a 1/4in of insulation.