Newbie from South Jersey

Hey folks,
This is all new to me, not just the shopping for a wood burning insert, but the whole chatroom thing as well. So hopefully I'm following proper protocol. If not, pls excuse my inexperience and feel free to point me in the right direction.

I live in southern NJ in a 60 year old home located on a lake in the Pine Barren region. We have an existing masonry fireplace that we love to burn, but have come to the realization that it's just too wasteful. We don't even have glass doors. Anyhow, I found this website tonight while googling wood burning inserts. I'm up way too late enjoying the wealth of info you all provide. We've been focusing on buying a Clydesdale by Hearthstone. I like the tech specs and my wife likes the appearance. (I love when that happens!) Anyhow, one big issue seems to be a potential concern with our existing chimney. A level two inspection revealed that it had a few hairline cracks on the 5th tile from the top. Figured this is not going to be a big deal since I always assumed we'd be installing a 6" SS liner with the insulation wrap kit. Turns out, our existing terra cotta liner is only 7" by 11" inner dimensions. An insulated 6" SS liner would end up about 7.5" outer diameter when wrapped. Now what? Do I skip the insulation of the liner? Do I reduce the diameter from the 6" collar to a 5" liner then insulate -- doubt the manufacturer would suggest that. Our house is 2 story, open floor plan, 2900 sf, with about 25' high chimney. Fireplace/chimney is interior located on the common wall that separates the kitchen from the great room and chimney runs up through the center of the attic. Any comments/thoughts would be appreciated.

Thanks, folks, for the input. I like Daksy's idea of maybe using the thinner (1/4") insulation wrap, although if I use a 6" liner to match the Clydesdale collar connection, I'm still going to be real tight I would think. Having less than a half inch wiggle room seems like it would pose some problems with installation. Some websites suggest the outer diameter might still be around 7" even with the 1/4" wrap. And isn't there supposed to be some air space left between the insulation and the terra cotta flue liner? Is there a pre-insulated liner made that has an outer diameter of perhaps 6"? Looks like I'm down to three choices: 1. use 6" ss liner with no insulation 2. use 5" or 5.5" liner with wrapped insulation or 3. use 6" liner then pour in Thermix. The Clydesdale calls for a 6" liner so I'm a very concerned about opting for a thinner diameter liner fearing that it would not draft properly. Is this a legitimate concern?

Also, thanks for all the advice and suggestions on the importance of dry, quality wood. I was not aware of the challenges finding good, properly seasoned wood. I've got lots to learn!