Putting up drywall or insulation?

In the process of closing on a house in a few days and thinking about a few of the repairs that are going to be needed.

I’m clueless when it comes to home repairs so I’m looking for advice!

While looking at the home we realized that behind the current wood paneling there is no insulation. The previous owners have pieces of normal styrofoam behind the paneling.

Our first thought was to rip the paneling down, put up insulation and then put drywall back up.

Someone else had also suggested just putting up drywall over the wood paneling to save us some money and still better insulate the room.

No idea which direction I should go. Thoughts are appreciated, thanks!