Abstract: A water heater construction including an inner tank for containing water surrounded in space apart relationship by an outer shell. A sleeve of insulation material, such as fiberglass mat is located in the annular space between the inner tank and outer sleeve and extends from proximate the bottom end of the water heater construction upwardly longitudinally thereof a distance less than the entire height of the water heater construction such that the top edge of the insulation sleeve is a distance below the top end of the water heater construction. The top edge of the insulation sleeve includes an annular cuff which is of a radial thickness greater than the radial thickness of the rest of the insulation sleeve such that the cuff is compressed between the interior wall surface of the outer shell and exterior wall surface of the inner tank. An expanded foam thermal insulation material fills the annular space above the cuff of the insulation mat.