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I am fixing up my basement, and to make it seem bigger- we decided to remove the drop ceiling and are going to have the exposed ceiling and duct work sprayed black.

There is some insulation around the outside walls between the top of the wood paneling and the ceiling...what should I do with this? None of the insulation is in bad condition, but I don't really love the look of it and would prefer it be removed, but I also don't want this to cause any issues with the heating in the house. The basement itself is heated.

Any advice or suggestions would be appreciated!enter image description here

enter image description here

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Do not remove the insulation. You will degrade the overall effectiveness of the R-value (insulation rating) of the walls.

Continue the finish materials (it looks like wallboard) up into the cavities between the floor joists. You will need to install vertical nailing strips on the sides of the joists, and on on the underside of the subfloor would also be a good idea.

You can then tape the horizontal butt seam, sand and paint.

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I've been looking at some of the spray/foam insulation- would that be an effective alternative if I removed this insulation? – Ryan Kleven Sep 16 '13 at 21:59
Spray foam is very efficient, but it also is supposed to be covered. It may give you a slight R gain, but probably not much in those small areas. – bib Sep 16 '13 at 22:01

Insulation needs to stay. Instead of drywall you can cut pieces of plywood and put into the cavities and paint black.

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