The energy efficiency of buildings drives the replacement of traditional construction materials with lightweight insulating materials. However, energy-efficient but combustible insulation might contribute to the building’s fire load. Therefore, it is necessary to analyse the reaction-to-fire properties of various insulating materials to provide a better understanding of designing a fire-safe structure. In this study, reaction-to-fire tests were carried out to assess the fire behaviour of lightweight polystyrene insulating panels commonly employed in high-rise buildings. The flammability characteristics of expanded polystyrene (EPS) and extruded polystyrene (XPS) were determined using a cone calorimeter under two distinct external irradiance regimes, 35 kW/m2 and 50 kW/m2, to approximate small to medium fire exposure situations. To investigate the effect of a fire-rated (FR) foil layer on a sandwich panel, three distinct test configurations were used: (i) sample without FR layer (standard sample), (ii) sample with FR layer (FR foil), and (iii) damaged layer (foil and vent) for EPS. Except for the smoke toxicity index (STI), the overall fire performance of EPS is superior to that of XPS. The findings of this study are useful in analysing fire performance and fire safety design for lightweight insulation panels.