Outlook 2016 has a different "Attach File" function which lacks the necessary option (Insert as Text) to properly embed an HTML template into an outgoing email. Using the option available without taking the proper steps will result in your template being added as an attachment or file. To make this option available, you are required to restore the classic "Attach File" function.
To Enable the 'Insert as Text' Attachment Option
STEP 1: Open a new blank composition window
STEP 2: File > Options > Quick Access Toolbar
STEP 3: Set the 'Choose Commands From' dropdown list to 'All Commands'
STEP 4: Navigate to "Attach File" and click add.
STEP 5: Click "OK" to confirm.
STEP 6: You will find the necessary Attach File option in a new composition window on the top ribbon.
There is difference between adding either "Attach File" and "Attach File..." options. The latter will not provide the "Insert as Text" option that properly adds HTML templates.