A water heater should be placed in an area that will prevent damage to floors, ceilings, and furniture if the heater leaks. When this is not possible, a drain pan must be installed under the water heater. Since a typical drain pan doesn't hold that much water, it must have a pipe to a drain or other outlet for the water. When installed properly, a drain pan and pipe will keep any leakage under control and protect your belongings from water damage.