Effective insulation is the way to keep the warm air warm. Preventing the heat loss that results from escaping air is the most cost- effective way to keep a house warm, contrary to the claims of all the insulation, siding, and window manufacturers. Now offer me a truckload of fiberglass batts or a roll of plastic, and I'll take the plastic every time. Insulation helps, but without a proper air barrier, it is not a cost-effective solution. Job one is to seal the building.
Warm air rises.
That is why a chimney works. We start a fire at the bottom of the chimney, the air expands, becomes less dense, and rises up and out of the chimney. The escaping air is displaced by the denser unheated air that surrounds the base of the chimney. This is called the stack effect. It is what makes your chimney draw.