Insulating a heater exhaust?

Quandary

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Why?
I am replacing the diesel burning warm air heater, it is located in the void between the aft cabin and the transom, the existing exhaust, less than a metre long, is well insulated with a woven glass fibre sleeve but since the pipe transits an inaccessible void space on the way to the skin fitting I am wondering what function the insulation is actually intended to serve. Insulating it surely means that the gases stay hotter transferring more heat to the hull fitting. The bit of waste heat would surely be more beneficial inside the boat than out? Or is there some requirement in the combustion and exhaust process that benefits from not cooling the exhaust?
 
Keeping the exhaust hot minimises condensation inside it.

Indeed.
The exhaust is supposed to be sealed.
The heater is often low down in the boat.
If the exhaust condenses, the heater may fill with water (acidic water at that) and stop working.
The alternative is to have some sort of drain.
 
Indeed.
The exhaust is supposed to be sealed.
The heater is often low down in the boat.
If the exhaust condenses, the heater may fill with water (acidic water at that) and stop working.
The alternative is to have some sort of drain.

Seriously?
As I said above, the pipe is less than a metre long, that includes a loop upwards from where it emerges below the heater then a fall to the outlet, I can not visualise where the condensation will come from, when the heater is running the temperature of the pipe will be much too high and when the heater shuts down it always goes through a venting stage which surely must discharge any remaining gases?
I suspect you may not have experienced the heat that develops in these things. 'The exhaust is supposed to be sealed' the insulation has no effect on that except perhaps to hide leaks, if it was not sealed I would have CO discharging inside the boat.
The pipe is thin spiral wound flexible stainless steel only 25 mm. dia. so gas velocity is high as is the temperature, because the pipe is so light the temperature rise will be almost immediate and should stay up all the while the burner is working, when the burner stops does it not cease producing gas?
I would accept the argument for a long heavy exhaust but not for what I described.
 
I wonder why Eberspacher provide pre-insulated exhaust pipe with their marine kits?

Probably because exhaust often run through crowded spaces where they might touch things. In the OPs case the insulation doesn't seem to be serving any useful purpose.
 
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