The hottest part of our insulated hot water cylinder is (obviously) the top where the immersion heater fits. The heater cover is embossed with the command "DO NOT COVER". I think we could reduce the heat loss by covering it but wonder what is the reason for the message. The cable is high temperature rated and the water max temperature is 62 deg C.
But the resistance of the connections between cable and connectors, and across the thermostat contacts, running at 13A could develop significant heating effects. Added to the temperature from the water I guess that if you also cover the immersion boss you increase the possibility of dangerously high temperatures causing (or speeding up) breakdown of components in the heater boss.
From which point of view heaters mounted low down on tanks, or even underneath, should be thermally better off. Though the underneath ones, especially, are a PITA to replace!
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