If you're going to remove the entire board (instead of the good idea directly above), consider using Hardee board siding. It's a cement-impregnated fiber so it's not going to rot. Inexpensive, too.
I'll take a look at Hardee. The reason I gravitated towards the LP product was that is was rot resistant, cheap, and available at our local HD.
I installed Hardie Panel over the plywood sheathing of our 1971 home. You will need 2 people for hardie, as it is very heavy cement-based board. Paints up nicely if you buy the pre-painted (the primed only may be rougher) and looks like wood when done. Wears out sawblades quickly, use the corrosion resistant nails or screws.
Your selection of material looks nice, though, can you paint it? Also check the weight, it may be lighter than Hardie.
Both will need the trim reinstalled / replaced.
The insulation is a great idea, as it is permeable, watch out for changing the depth of your trim and the insulation + panel might be thicker. Good Luck!
Once last comment -- our home had tar paper used as the vapour barrier, and it had many tears/ gaps. Replacing with a new sealed vapour barrier under drywall eliminated many drafts and added a lot of insulating value to the home. / lower heating costs.