If it’s time to replace or upgrade your water heater, you may be considering installing a tankless model in your home. It’s important to review tankless water heater pros and cons to help you make the right decision about which type of water heater to choose. Let’s cover how tankless water heaters work, the differences between gas and electric models, and the benefits and potential downsides of tankless units.

How Tankless Water Heaters Work

Tankless water heaters—also known as demand-type, on-demand, or instantaneous water heaters—heat water directly without the need to store water. A tankless water heater has a flow-sensing device that is activated whenever a hot water tap is opened. The unit then heats the water using either a gas burner or an electric element and directs it wherever it’s needed in your home. Once you close the hot water tap, the unit senses that the flow of water has stopped and shuts off the heating element.

Tankless Gas Water Heaters Versus Tankless Electric Water Heaters

It’s important to consider which form of energy to use with your new water heater. In general, electric tankless water heater costs are cheaper than gas models. Installation is easier and less expensive, and they’re generally not as difficult to maintain as gas versions. Very few, though, have the capacity to serve multiple outlets at once. For a household of one or two people, an electric tankless water heater should be adequate. For larger families, a gas unit is more suitable.

Gas tankless water heaters are available in a variety of models and sizes for both residential and commercial use. They range in output from 130,000 to 380,000 BTUs—more BTUs mean more heating power.

If your current water heater is gas-powered, you may think installing a tankless gas model will be easy. That may not be the case. Most conventional gas tank water heaters were not installed with a tankless retrofit in mind. Consequently, your home’s gas piping, meter, and main line to the meter may not be sized properly, requiring an expensive reconfiguration and installation. Gas units also require a safe ventilation system, while electric units do not. 

For both gas and electric models, a tankless water heater’s overall energy efficiency is measured using an energy factor (EF) rating. This EF rating is based on test procedures developed by the U.S. Department of Energy. The higher the energy factor, the more efficient the water heater.

Check out electric and gas heaters FAQs to help you determine the best tankless water heater for your household.

Benefits of a Tankless Water Heater

Let’s cover the advantages of installing a water heater without a tank in your home:

• Size. They are smaller than conventional water heaters and are wall-mounted, freeing up floor space. Their size makes them particularly attractive in homes where square footage is at a premium.

• Energy efficiency. They can help you save on your energy costs. According to Energy.gov, tankless water heaters can be up to 34 percent more energy efficient than conventional models, helping to reduce the amount you pay in utilities each month. Note that energy efficiency varies depending on the type of tankless water heater: electric or gas.

• Life span. They are durable and have an average life span of about twice that of conventional water heaters—20 years or more.

• Safety. Tankless units are generally safer than water storage models because of their simplicity and lack of an exposed pilot light. They also often have sensors that shut down the system if it begins to overheat. 

Disadvantages of Tankless Water Heaters

• Upfront cost. It generally costs more to purchase and install a tankless water heater than to buy and install a conventional tank water heater. However, the energy efficiency of a tankless model may help you recoup the upfront price. Tankless water heater installation costs vary depending on what needs to be done. In many cases, existing piping must be extended or relocated, and, for a gas unit, a safety vent must be installed to prevent carbon monoxide from accumulating inside the home. 

• Speed. “Tankless” does not mean “instant hot water.” Contrary to popular thought, a water heater without a tank does not necessarily deliver hot water to your tap any faster than a conventional water heater does. In fact, a tankless unit may be slower because it takes time for the tankless unit’s heating element to first heat the water before delivering it to the tap.

• Capacity. The flow of hot water is limited by the unit’s capacity to heat the water. Typically, hot water flows from a tankless heater at the rate of 2 to 5 gallons per minute, which may not be enough for several simultaneous uses of hot water in your household (like running both the shower and your dishwasher at the same time). Overload is one of the most common issues with tankless water heaters. If you live in a multi-person household and are comparing tankless models, pay particular attention to each model’s gallons per minute (GPM) flow. The more people and simultaneous usage possibilities, the greater the GPM needs to be. One solution is to install multiple tankless units to meet the demands of a large household, but that comes with more expensive upfront costs.

• Power outage risk. Electric water heaters without tanks will not produce hot water during power outages. Because these models don’t have storage capacity, there is no backup hot water source during these emergency situations.

• Water type. Hard water is problematic for all water heaters but especially for a tankless water heater. The water heater should be drained on a regular basis, and the filter needs to be replaced monthly. (Conventional tank units need to be flushed about once every year.) If you don’t take these steps, hard water can affect the efficiency of a tankless water heater in only about two years. Also, failure to follow these water heater maintenance requirements may void the manufacturer’s warranty. 

Final Thoughts

No matter how you choose to meet your home’s hot water needs, you’ll want to protect the investment you’ve made in your tankless water heater. A home warranty from American Home Shield® can help. All of our plans include water heater warranty coverage for conventional and tankless units to help cover the costs to repair your unit if it encounters an issue due to normal wear and tear. If you have the ShieldPlatinum™ plan, any work done to bring the covered item up to code, make any modifications, or obtain permits will be covered up to $1,000. Learn more about this coverage, and shop our pricing and plans today. See the plan contract for coverage details, including service fees, limitations and exclusions. Charges for non-covered items may apply.   

Recommended reading: Learn how to fix your water heater.