If it's a policy through your bank account (I'm guessing Barclays or HSBC), it covers the accountholder and their spouse if travelling with the accountholder.
The policy defines close relative and I'd bet it includes
mother-in-law. So your husband is entitled to claim for cancellation due to illness of his close relative too.
If you have to pay a further cancellation charge, this will be covered too.
The nonly area you might come unstuck is if your mum had her medical condition when you booked the holiday and you didn't declare it. If she's been well for several years, this should be OK though.
Let us know if you have any probs.