The standard insulation will be fine, that's all Henry did. If you add insulation it may affect gauge operation since it uses induced current from the wire passing through the loop.
The OG wiring was probably cloth wrapped. Regular heat shrink tube should be fine. Check it now and then to make sure it isn't getting too hot for the insulation.
The type or thickness of insulation will NOT affect the magnetic induction of the system. If alternating current were involved, there could be some effect, depending on the frequency of the A.C. Bob L
I believe Ford discontinued using the old varnished cambric-cloth insulated wire in '54 or early '55. Color-coded thermoplastic insulated wiring became the new standard in '55 and later Ford cars. As the wiring ages, the plastic insulation can become brittle due to heat and cold weather extremes, especially where wiring is located in the engine compartment. But the cars were only designed to last ten years, so I guess they figured the insulation would last that long.