This study clarifies the law of diminishing returns when improving the conservation level of residential buildings by using case studies simulation. It explores the effect of different climates on the decision of selecting the insulation type and thickness. It shows the importance of using the life-cycle cost model on the decision of adding more insulation levels and knowing when to stop. RENCON program was employed to estimate the annual heating and cooling requirements of a 108 m(2) house. The analysis was carried out for several cases of two types of roof insulation (polystyrene and fiberglass) in two different locations (College Station, Texas and Minneapolis, Minnesota.) R5 was found to be the most cost effective thermal resistance in polystyrene in both locations. In fiberglass, R10 was the most cost effective. It was found that investing money to improve the insulation levels in the cold climate house has better returns than that of the warm climate. (C) 2002 Elsevier Science Ltd. All rights reserved.