Most of the new hot water heaters are pretty efficient and don’t need any additional insulation. However some of the older tanks, or less efficient newer tanks, could benefit from some added insulation. They way to tell if you need more insulation is to simply touch the side of your hot water tank. If it is warm to the touch, then some of the heat is escaping which is a sign the tank isn’t that efficient.
You can buy a hot water insulation blanket for a 45 to 55 gallon tank at Home Depot or Lowe’s. It’s nothing more than fiberglass insulation with a plastic outer coat. Most come with tape already attached to the blanket, but you might want to add a bit more.
To install it, simply wrap the blanket around the exterior part of your tank and tape it in place. There should be strips of tape so you can secure the blanket to the top of your hot water heater. This will prevent it from sliding down to the ground. However, before you tape it to the top of your heater, clean the surface so the tape will stick better.
There are two things you must make note of, otherwise you can damage your hot water heater or start a fire. Most tanks have an opening near the bottom of the tank near the dial that controls the temperature setting. You must not cover this hole. This is most likely where the pilot light is and it requires a steady supply of air so as to remain lit. The other thing you must not do is extend the blanket all the way to the floor. Air for the combustion of the natural gas feeds in through the bottom of the tank which is why the tank is raised off the ground a few inches. If you obstruct this supply of air, the flame can go out and natural gas may continue to leak into your home.
If at any time you smell gas or you no longer have hot water, turn off the hot water heater. Turn off any other ignition sources in the immediate area, such as a furnace. It might be a good idea to open some windows to bring in fresh air as well. Check to make sure the blanket hasn’t slide to the ground or blocked the air intake ports.
It’s also a good idea to insulate the hot water pipes leaving the hot water heater. This will help to retain heat so you don’t have to run the water as long when waiting for it to get hot. There are several different types of pipe insulation products, but I found the foam tubes to be the easiest and quickest to install. The slip over the pipe and have an adhesive tape built into the seam.
Since I installed our hot water heater blanket I haven’t noticed much of a difference. If I stick my hand between the insulation and the tank, it is warmer than had the blanket not been there. According to the instructions, the blanket is supposed to pay for itself in about 18 months. However, this would be very difficult to prove.
UPDATE (2018): My old hot water heater picture above died and the newer one I purchased is far superior. It does not need a hot water insulation blanket. You really shouldn’t need one with today’s newer hot water heaters.