It is probably the most cost effective measure out of all the energy conservation measures and it has a one year or less payback. The cost is about $30 and savings varies from $30 to $50 per year, depending on the efficiency of your water heater.
Water heater wraps maintain the temperature of the water longer so the heating elements or gas do not have to come on as often, and the less the elements come on, the longer the heater lasts.
The average household actually only uses hot water a little bit more than a hour a day, so for more than 22 hours a day, the water heater just maintains the temperature of the water. The vast majority of the cost to operate a water heater is maintaining the temperature of the water when nobody is using hot water. Oh, and setting the limit to 120 degrees will save at least another $30.