This is a somewhat controversial topic in the Home Inspection industry, especially as some local energy codes may require a blanket. A few things to keep in mind:
1) Insulation blankets may void some manufacturer's warranties.
2) The listing of the appliance requires that the various labels be visible, people rarely bother to cut the blank to expose them. Again, this may void the warranty.
3) If not properly installed the blanket may interfere with air flow to the draft hood, if it slips down it may obstruct movement of combustion air to the burners, it may also interfere with the operation and inspection of control and safety devices.
4) According to the manufacturers anyway, modern water heaters are donít need a blanket:
5) So a retro-fitted the blanket may actually decrease efficiency, see for example:
So if you do install a blanket, you want make sure itís installed in compliance with the manufacturer's instructions, and inspect it regularly for slippage or damage.