... An indicator panel with 4 neons, for the elements, l1/l2 and the overload?

Green (lens) across the input voltage
Red across the over temp sensor
Yellow across each element.
For a couple of bucks you would instantly know the electrical status of the heater and with a simple flow chart you could diagnose the problem without ever opening a cover or getting out your meter.
I suppose you also need one between the thermostats if you really want to cover all bases.

Perhaps you should send that to a WH mfg! Sound interesting....even a HO could 'see' what's wrong (or right)

Greg...you may become a rich inventor!

Now I'll have an excuse to open the door to the closet where the water heater is located.

The Whirlpool we put in my parents' place has an indicator light on its control panel that is supposed to indicate under/over voltage, element and control circuit failure. However, it wasn't working too good when the circuit board basically melted... Not sure what happened with that one, took half the circuit breaker with it too.

The whirlpool you are talking about is known to have alot, of problems with their boards,
Bad part you can't even jump them out to get the water heater going to take a hot shower. IMO Whrilpool screwed up on this design. The board cost more than a new water heater

"The board cost more than a new water heater"

The only answer. This adds cost. In a world of $1.99 as opposed to $2.00.
Very simple.

Whirlpool gas "Flamelock" water heaters are the subject of a class action lawsuit, so not surprised that electric WH's are a problem too.

There is no reason an electric water heater needs to be complicated. Basically you have a tank, 2 thermostats and 2 elements with a mechanical TPS valve to keep it from blowing up if something goes haywire.
The only trick is figuring which of the 4 electrical parts is bad when you have a problem. Poking around inside is dangerous for the unskilled but if you just kept an eye on the lights when it failed you would have the information to make this a "one part" call when you called someone (most of the time) and keep the service time to a minimum. Everyone wins with that.
I have a mystery problem as we speak and that is why I got to thinking about this. I know it is a bottom element failure but that could be either thermostat or the element.
I know I can probe 2 points to figure it out but I am trained to do this sort of thing and have the appropriate probes.

The water heater at work has 3 LED. One for each element to indicate if they are operating.

Oddly enough, I just worked on a commercial GAS water heater that had something like what you suggest ... to troubleshoot the electronic igniter, and various other safeties.

In this instance, the troubleshooting chart kept leading me to the new damper ... opening it up, we found that the factory had failed to connect a wire. Oops.

I think the key word here is 'commercial.' From my observations, homeowners only see one thing: the price tag. That's the first problem.

The second problem is that many water heaters - General Electric most notably - are made by a generic water heater manufacturer. In such instances, the only way things will change is if a premium brand has some new feature that allows it to start grabbing up market share .... at which time the copy cat does what he does best: follow the leader.

The convenience of the service tech is way down the list of priorities for these folks.

LOL, I've seen that a few times before :P

Oh it's worse than that. Not only does it add cost, it kills sales! I mean, why would a HO replace a water heater when all it needs is a new heating element? As it stands now, all they know it's "it's broke" and they fix it by replacing it. The manufacturer has TWO good reasons not to add 20 cents worth of LEDs to the control board.

I have to agree that the last thing that manufacturers want is for you to actually know what is wrong. Water heaters have become such "throw away" items these days. Greg, I do like your idea though. I have thought about that same setup many times for my own unit at home.

I've often thought about running a second circuit to mine and wiring it so that both elements can operate at the same time for faster recovery. I talked to a plumber friend about this and his response was that you really don't want to mess with altering the listed design for legal reasons. I guess that I can see his point there.

Safety issues with water heaters and subsequent failures have become such "lawyer candy" that I'd be worried that any field modifications that I made would come back to bite me if there was ever a need for an insurance claim.

To be fair, there is something called "value engineering." Water heaters are a very good example of it.

Henry Ford was reported to wander junkyards, and to take notice of what car parts were out-lasting the entire vehicle. It was his opinion that 'proper design' meant that every component had essentially the same expected life; that additional durability in any component was wasteful.

From the day a water heater is installed, the clock is ticking. It will fill with sediment / scale; the anode will corrode away, the tank will corrode, seals will crack, etc.

So, let's look at the 'fault chain' here.
Say an element goes bad. First of all, a replacement might not accomplish much, if the tank is full of scale. Enough time may have past that the anode is gone, and the tank is rusting away. Worse, the T&P valve may also be obstructed by scale.

In short, remember: We're electricians, not plumbers. Replacing that heater might be the best solution.

For those who haven't seen this before, here is a video of what happens to even a tiny water heater when things go wrong:

http://www.youtube.com/watch?v=GF_Wrm-Ns0I

I have had pretty good luck nursing along old water heaters. If I replaced one every time it got scale in the bottom I would need quick disconnects on the water lines and cord and plug connections. I usually pull out the bottom element and clean it with a shop vac about once a year.
My water heater is outside so a catastrophic failure is not really that bad. I am on a well so explosion is not very likely. It will just expand back into the pressure tank. I imagine that even in a worst case scenario, the PVC piping would let go before the tank.

I actualy wired indicators (12)to my parents furnace just so I could tell what its doing at any given time but I will admit it has been very useful in troubleshooting and verifing proper operation.

A.D

I thought about doing something similar with my furnace. I'd like to know at a glance when the backup electric heat is on and how many elements are active. Not that it really matters, you can already tell anyway, just more of a curiosity thing. I even thought about small hour counters per-element, but later realized that it doesn't matter. We still need the heat, so why punish myself with visual indications?

Ed,I agree we still need the heat but when you own a newer furnace that is as unreliable as my parents and mine in fact, Visual indications are a nice quick way for my parents to monitor what the furnace is doing and then let me know what they see happening OR not happening when there is a problem. Besides, visual indicators, and lots of them look kind of cool

A.D