The impact of the envelope insulation and location of a Chilean single-family dwelling on the energy and environmental performance remains understudied. To figure this out, this study proposes to develop a life cycle assessment of a social housing with different thermal insulation materials and thicknesses (1–15 cm) in seven cities located in different thermal zones. The impact of the insulation and climate conditions is evaluated through the dwelling heating demand and the environmental impact, which allows determining the overall impact of improving the housing envelope by considering a cradle-to-grave approach. The functional unit considered in this study is 1 m2 of the total dwelling floor area. As expected, the heating demand showed notable differences between cities, being more energy-intensive (134–236 kWh/m2 yr) in cities located in Chile's extreme south, such as Punta Arenas. On the other hand, the major environmental impacts were registered in Puerto Montt (600–850 Pt/m2), although this city does not present a high heating and electrical energy consumption. Regarding the insulation material performance, increasing the wall insulation thickness (1–15 cm) decreased the U-value by 31 and 89%, resulting in an energy saving of 57–60% and reducing the environmental impact by 18 and 29%. These findings suggest that the actual thermal standard could be improved for reducing energy consumption and the environmental impact in the cities located in southern Chile. Moreover, the results demonstrate that the environmental impact depends more on the energy resources used to produce heating, electricity and domestic hot water than on the location of the city. It allows to identify potential opportunities to implement feasible and more sustainable solutions for social housing design considering site-specific conditions.