A new live-line insulator tester was developed to detect faulty insulators in 154kV power transmission lines. This paper is the second part of the two-part paper and deals with its inspection algorithm development. Unlike normal condition with low pollution and low humidity, the inspection data measured in the field under high pollution or high humidity showed that the voltage distribution of an insulator string has offsets in comparison with those of others and its insulation resistances are greatly decreased, which leads to wrong results of the existing inspection algorithms under such conditions. To solve this problem, we propose new diagnosis algorithms that can exactly detect faulty insulators from measured data regardless of environmental conditions. Its effectiveness was validated by live-line field tests in actual power lines.