Call your insurance today. Ask them what you need to do. They should work with you.
Most Travel insurances will replace the exact amount of money you lose to “non refundable expenses” IF you fail to travel for COVERED REASONS. Most of the time, Covered Resons includes a medical emergency in a close relative of one of the members of the travel party (usually including medical emergency of a parent, sibling or child).
So, you are probably covered, BUT some insurances require you to contact them right away, at the start of the trip, if you can’t make it. They will tell you what to do. You will, EVENTUALLY need a letter from your mother in laws doctor, explaining who she is, her relationship with your wife, and that she was in the hospital for a significant medical emergency.
You will eventually need to go online, to their website, to file a claim, explain what happened, and then arrange to send them documentation of your PAID flight reservations, your paid DVC reservations, and other non refundable expenses. so start gathering these papers or print outs of your reservation confirmations and keep them in a folder. You will need to send them in, later. The 3rd Party vendor you went through might be able to help you with some of this. Ask the insurance, but I don’t think you need for the DVC people to necessarily cancel. They will probably just need to verify, in one way or another, that you didn’t come. The insurance will advise you.
Should work out. Just keep plugging away at it until you get you refund. In one case for us it took over 6 months, but that was okay.
I have written 3 travel books and I always recommend that people seriously consider Travel Insurance, but especially for the longer, more expensive and more difficult trips. Travel Insurance saves you money in emergencies and reduces stress. Most insurance companies don’t even bat an eye if you submit a claim. It is part of their doing business, and they should have people to help you. But the process can be long and a bit complex, and talking with them sooner, rather than later, can help a bit.