In general, the more tank insulation the better, since it reduces standby heat loss. Tanks are available with insulation ratings ranging from R-6 to R-24. It may be possible to add an extra insulating blanket or jacket on the outside of a poorly insulated tank to reduce heat loss. The most common type of water heater blanket is fiberglass insulation with a vinyl film on the outside. The insulation is wrapped around the tank and the ends are taped together. It is important that the blanket be the right size for the tank and not block air flow or cover safety and drainage valves, the controls, or block airflow through the exhaust vent, if any. In very humid locations, adding insulation to an already well-insulated tank may cause condensation problems, potentially causing rust, mold, or operational problems. Look here is the truth on this. If the manufacture recommends insulation or gives guidelines for installation, then it probably OK to add an approved insulating cover.
As an Inspector I don't like the insulation blanket on hot water tanks. I always cringe when I see one. We will advise that it must be checked in accordance with the manufacture guidelines.
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