I have had many problems with my heat shrink for the thermostat on my Anet A8 melting from the heat block.
Is there a way I can insulate my wires from heat but still have enough room to put the thermistor into the block?
You could use Kapton tape to tape the thermistor. It is usually the best option for sticking something onto the hotend or on the heat block. You will also have less trouble since it is very thin.
Note that if you use Kapton tape, you should use several layers of it for added insulation.