Water heater in attic

My house is 12 years old and the water heater is in the attic. I've never had an attic water heater before, so it makes me nervous. I've been thinking about switching to a tankless heater, but wanted to make sure I'm not over worrying. I've heard of ground level water heaters bursting and flooding houses, so it makes me nervous the attic one could do the same and ruin my ceiling. Is this a legitimate concern?

Yes, all WH eventually die and leak. In an area where it can cause damage, it should be set into a drain pan with a properly hooked up drain, and if it is in an area where you may not notice, you want to run that drain somewhere you're likely to see it leaking. It's also a good idea to install some sort of safety shutoff device. One I like is www.wagsvalve.com which will shut the water supply to it off if it leaks. Many places in Texas have pretty hard water - this is tough on any water heater, but especially so on a tankless. WHile you may get away without doing any service on a tank-type heater over its life, that is certainly not true with a tankless, which will require service typically on an annual basis. SO, count that into the cost.

From what I have seen most start leaking slowly. Its when it goes unnoticed there is a big problem.
I have one in an attic. But have a drain pan under. And a pipe from the drain pan thru the ceiling above the bathtub. Pipe cut flush with the ceiling and a small grate over the pipe. Painted to match the ceiling and you don't notice the appearance of it. If it leaks you will hear or see the drips in the tub.