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Home and contents insurance is framed as key to Australia's national strategy for disaster resilience. Despite the perceived importance of financial indemnity, ambiguity characterises the ways in which it facilitates both short‐ and long‐term everyday household recovery when disaster strikes. Addressing such ambiguity, this article explores how insurance impacts upon households' capacities to rebuild and recover after disastrous bushfire. In‐depth interviews conducted with residents in the Blue Mountains of New South Wales four years after they were affected by the October 2013 bushfires show that insurance was fundamental to recovery. Swift claims handling and payouts allowed participants to access rental accommodation, material necessities, and sufficient finances to repair, rebuild, and refurnish their houses—essentials in restoring everyday routines and a sense of normalcy. Yet, many people were underinsured and used alternative strategies to stretch "adequate" insurance coverage, which had practical and emotional implications. Importantly, while insurance reduced post‐disaster stress and trauma, the length and depth of recovery were more closely determined by the impacts of personal and situational circumstances than by insurance. On that basis, analysis points to the conclusion that while insurance is a crucial tool for disaster resilience, greater levels of psychosocial support are needed to improve households' short‐ and longer‐term recovery. [ABSTRACT FROM AUTHOR]