Insulate your pipes so the heat stays inside (where it belongs) and so hot water gets to you more quickly and effectively. When a water heater is doing nothing, the heat radiating from it reduces the heat of the water inside. The thermostat needs to switch the heater on to heat up the water, and the cycle continues. This is called "standby" heat loss. Insulating about the first five feet of cold water pipes at the water heater helps preserve heat energy.
Another cold water pipe you might want to insulate is the water service entry pipe. The incoming water is very cold in winter, and insulation will prevent humidity from causing condensation to form on the pipe. Closed-cell foam insulation is easy to install and insulates pipes well.
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