It costs money to heat the water in your house. If the water cools down while it's in the pipes used your hot water heater will have to re-heat the water again. Insulating the hot water pipes leading from your water heater will help maintain the temperature of the heated water, reducing the amount of time you will need to wait for hot water when you turn on a faucet or shower.

If you have a tank-type water heater, adding insulation can also reduce heat loss. For moderately-well insulated tanks, for which you wish to supplement the existing insulation, an less expensive tank wrap will provide value. For under-insulated tanks that are obviously losing heat through the side walls of the tank, use a wrap with a high R-value. ("R-value" is a measure of thermal resistance. The higher the R-value, the more effective the insulating material is going to be.)