A water heater and method of assembling the water heater are disclosed. The method includes the step of positioning an insulation member around a water tank. An expandable tube is positioned at an elevation between a top surface and a bottom surface of the insulation member. An outer shell is positioned over the water tank, the insulation member, and the expandable tube to at least partially encapsulate the water tank. The expandable tube is expanded to compress at least a portion of the insulation member against the water tank or the outer shell. Foam insulation is delivered into a space defined adjacent the top surface of the insulation member and between the water tank and the outer shell. The foam insulation is substantially limited from traveling past the expandable tube when the expandable tube is maintained in an expanded state.