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The basement of my house is bare concrete floor with bare concrete block walls. I'm in Canada and would like to (and should) insulate these walls, at least the above-grade portion, which is about 18". The previous home-owner installed two dividing walls that make contact with the brick but there is no other framing along the perimeter of the basement.

If I'm going to put up insulation against the outer wall, should I remove the existing wall, at least the studs connecting to the brick first to provide a good heat seal, or leave them in place and insulate around them?

For context, the plan is to eventually finish the basement completely but begin with the heat losses.

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My preferred method of finishing basements: diy.stackexchange.com/a/8644/1209 In your case, if the wood studs touch the brick/concrete walls and floor with nothing in between, and especially if they're not treated, I'd be more worried about moisture wicking than insulation. If they are properly separated from direct contact via a membrane and/or they are treated studs, it's probably OK to leave them. –  DA01 Jan 31 at 17:07
    
I'd suggest placing a foil lined batt insulation in between each stud. –  Nick Jan 31 at 17:39
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I would not do what Nick suggests.... –  DMoore Jan 31 at 19:35
    
@DA01 I'm specifically concerned because they directly touch the outer concrete block and concrete floor with no treatment or barrier in between. I'm concerned they'd slowly rot once the outside wall is colder from the insulation. –  mikebabcock Jan 31 at 20:22
    
@mikebabcock it's a very valid concern. Conceret is essentially a sponge. If the wood is treated, you might be OK, but if you don't know, I'd definitely yank it out and do it right. –  DA01 Jan 31 at 21:44

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You might as well just remove the stud and small section of plate that contacts the wall. this will allow you to completely insulate the wall and the stud can be re-installed outside the insulation and screwed into the upper and lower plates if you cut them correctly. This will also come in handy when you go to put walls against the insulated concrete. The existing stud will be here you can corner to it with extra sheathing studs and make a proper corner. Canadian codes are very strict, so do it right the first time.

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