A fan coil unit is provided including a cabinet formed from a plurality of panels. A fan assembly is configured to circulate air through the cabinet. A heat exchanger assembly is positioned within the cabinet. The heat exchanger assembly includes at least one heat exchanger coil arranged in a heat transfer relationship with the air circulating through the cabinet. An inner surface of at least one of the plurality of panels is partially lined with an elastomeric foam insulation so that the air circulating through the cabinet does not contact the portion of the at least one panel lined with the elastomeric foam insulation.