I insulate my key just because I keep it in the same ziploc bag as my credit card, insurance card and ID. A key would definitely tear those up, just riding. I took a piece of closed-cell foam packing material (not EPS, the slightly more flexible stuff, I don't know what it's called) about 1 cm thick, cut it into a rectangle about 1 cm longer and 1 cm wider than the key, then put a slit in the center to hold the key.
That's my house key. Depending on where I'm riding from, I carry only a house key or a car key, not both. My car key is an RFID key - that, I have wrapped tightly in plastic cling wrap (one of the few things I use that stuff for!) so I don't corrode the electronics with sweat when I put it in my running shorts pocket, or if my cycling ziploc bag isn't completely watertight.
Speed comes from what you put behind you. - Judi Ketteler