[LazyPup]

I would be curious to know where you touched your meter probes when you measured 120v?

As Hayzee has already explained in a 240 circuit both "Line1" & "Line2" of your incoming power line are powered at 120v. The bare or green earth ground wire of your incoming power cable should be connected to a green grounding screw at the point where the power cable attaches to the water heater. That grounding screw is connected to the body of the water heater to the tank will always be at ground potential.

In a water heater the top thermostat is a SPDT (single pole double throw) switch, which performs an either/or function between the top and bottom heating elements.

During cold start the upper thermostat sends the power to the bottom thermostat, which is a normally closed-open on rise thermostat. During cold start the bottom thermostat would be closed sending the power to the heating element. If you touch one probe of your meter to one terminal on the lower heating element and the other probe to the opposite terminal you should read 240v.

With 240v the heating element is on and it should be heating the water. When the water temperature reaches the preset temp on the thermostat the thermostat opens, turning the heating element off. At that point you should read zero volts on the heating element terminals, however, if you touch the red probe of your meter to either pole on the heating element and the black probe to the water heater steel tank you will read 120v. The reason here is simple. The thermostats switch "Line1" but "line2" is wired direct to the heating elements therefore if you measure from the heating element terminals to the steel tank you are measuring "line2" to earth ground, which will always be 240v.

The bottom line, if you measure the voltage across the two heating element terminals and you get zero, that element is in the off position. If you measure 240v it is in the on position.

If you are measuring across the heating element terminals and getting 120v your water heater is not wired correctly and you have both elements in series.