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Frost-Heave Headaches -NEB Staff Report In cold climates, foundation insulation is clearly a good investment, even if the basement is not fully heated. But it's not clear which is better: interior or exterior insulation. Some prefer exterior insulation because it allows you to have a continuous layer of insulation over the band joist and sill area. Exterior insulation, however, has its pitfalls. The outside of a foundation is a rough environment for the relatively soft plastic foams that are used. The foam must be protected during backfilling, and the exposed areas must be protected permanently from sunlight (ultraviolet degradation), lawn mowers, and stray baseballs. The covering, such as stucco, must be both durable and attractive. And Then There's Frost And then there's frost. The house pictured