What kind of insulation is required?

There are several types of insulation that could be used but the easiest and most preferred is black foam insulation sized to fit around the pipe once the heat tape has been attached using duct tape. The heat tape (in my experience) will not melt the black foam insulation. Make sure the thermostat is placed snug against the pipe you are protecting from freezing.

Heat tape on PVC isn't a really good combo. Be sure to use a GFCI to prevent a fire if is does accidentally break. If I had to use it in an exposed area, like a cooling tower, or pool equipment. I would use Armaflex, like they use on the copper refrigerant lines.

If you are planning on wrapping the heat tape on top of the black foam pipe insulation, contact the manufacturer and ask them what effect the heat will have on their product.