Is it a good idea to wrap a water heater in insulation? Does it lower the heating cost? Does it shorten the life of the water heater?
A lot of water heaters (that I've seen anyway) are in unheated spaces -- basements, garages, attics (in some countries). The rate at which you lose heat from the water depends mainly on two things:
- the difference in temperature between the water and the outside environment. The greater the difference, the faster the heat loss.
- the R-value of the insulation between the water and the environment: the higher, the better.
The tank will provide some insulation, but adding a blanket for another layer of insulation will definitely help. How much it will help depends on the temperature of the water and the environment the tank is in.
(The surface area of the tank is also a factor in the rate of heat loss. While adding a blanket will increase the surface area, the savings by having the extra insulation will more than offset the loss the extra area will provide).
If anything, insulating should lengthen the life of the heater because it wouldn't have to work as hard maintaining the water at the set temperature.
When the gas company came out to replace the flexible hosing on our water heater I asked them about the blankets and they said that, as a policy, they recommend against them. I asked if the insulation would matter and he said only if we had the water heater outside. And then it would make more sense to build a very small enclosure around it.
Blankets are almost always recommended by people who do energy efficiency stuff. I would use one on an electric water heater, but I'm not comfortable using one on a gas unit. Ask the manufacturer of yours. They will probably say it voids the warranty. If it's out of warranty, then it won't matter.