$location_array_reversed = array_reverse( $location_array );

$i = 0;
$len = count($location_array_reversed);

$location_array_ids = array();

foreach( $location_array_reversed as $term ){

    if ($i == 0) {

        // Top level term
        wp_insert_term( $term, 'location' );
        $tag = get_term_by( 'slug', $term, 'location' );
        $term_id =  $tag->term_id;

        // Save term ID to array
        $location_array_ids[] = $term_id;

    } else if ($i == $len - 1) {

        wp_insert_term( $term, 'location', array( 'parent'=> $term_id ) );

        // Child terms
        wp_insert_term( $term, 'location' );
        $tag = get_term_by( 'slug', $term, 'location' );
        $term_id =  $tag->term_id;

        // Save term ID to array
        $location_array_ids[] = $term_id;

    }

    $i++;

}

// Now assign terms to post
wp_set_object_terms( $post_id, $location_array_ids, 'location' );