I'm new to this forum, and I've been perusing old posts. So nobody may see this, but here goes anyway. In some cases, adding insulation to a cylindrical or spherical object can increase, rather than decrease, heat flow. (I don't believe this would ever happen to a water heater, but I suppose it's possible.) There are two basic types of heat flow that we need to consider. Conductive and convective. (Radiation plays no part in this discussion.) Conductive heat transfer will always be reduced by adding insulation. But convective heat transfer can actually increase, because you're increasing the area available for heat transfer. Convective heat transfer from a pipe can be greatly affected by the orientation of the pipe (vertical, horizontal). But as a simple approximation the critical radius of insulation (beyond which you're actually hurting rather than helping) is = k/h, where k is the thermal conductivity of the insulation and h is the convective heat transfer coefficient. Notice that as h goes to zero, the critical radius goes to infinity. Meaning that if conductive heat transfer dominates then you can just keep piling on insulation. This is the condition we encounter in a home inspection -- particularly if the outer shell of the water heater is at the same temperature as the home's environment (always the case, right?). So the myth is true, although not something we'd ever encounter in a home inspection. Here's a good link: http://www.cdeep.iitb.ac.in/nptel/Mecha ... 2.6.4.html Steve