Your hot water heater is generally not covered by your insurance when they need repairs. However, water damage caused by a leaking water heater may be covered. Your water heater may also be covered if it malfunctioned unexpectedly, causing a larger problem. Some are located on a second floor, so a water leak that causes damage to your dwelling is likely covered. (Check policy details.) It’s always a good idea to replace a failing water heater before it’s time.