you are not storing the img file in the update folder. If you check the update folder after updating, it will be empty.
During reboot, the img gets decompressed, & I assume it overwrites older & changed files. I don't think it takes up very much more space.
I keep updating, & I haven't noticed any loss of space.
If you are really worried, just run Libreelec from a larger sd or usb. Although there might be a noticeable difference in speed compared to installing on nand