Not always, the electrical code is quite specific as to the type of installation where the ground wire needs to be insulated and in what type of installation the ground wire can use bare copper.
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To prevent the wire from getting short circuited to ground or even to other wires.
In low voltage wires, the insulation factor of the coating determines the wire's voltage rating. A wire coating of cross linked poly vinyl is used as an insulation. High voltage transmission wires uses no coating on the wire
So that the living organisms and other wires/metals are not affected by the current in a given wire. In the absence of insulation two wires coming in contact may cause short circuit and also there is a risk of death of the living organisms coming in contact. There is one more reason that insulation minimizes charge leakage from the wire.
Yes, if there in no ground wire that is acceptable on a home with no ground wires.
Leaving any exposed bare wiring can lead to short circuit and breaker tripping. Most of the times wires in junction boxes are jammed into the back of the box. This is to allow for a device such as a switch or receptacle to be installed. Leaving exposed wire showing below the wire nut could allow contact with other exposed wires or it could come in contact with the bare ground wire which is also jammed in there. Good workmanship should prevail, only strip as much wire as needed to twist the wires together. Then install the wire nut. The skirt of the wire nut should project down over the insulation of the wire by a quarter of an inch. If it does not use a larger wire nut. This will provide full insulation protection to the wires in the junction box.