When purchasing a travel insurance policy to cover for trip cancellation, either because of a traveler's illness or a family member's, in order for the policy to be considered valid, you must be considered medically fit to travel as of purchasing the policy.
In other words, you must be in good enough health that a physician would give you the "all clear" to have gone on your trip the day you took out the policy. This is especially important if you're looking to have a pre-existing conditions waiver included in your policy.
When we talk about non-traveling family members, 'fit to travel' is more of a way of defining whether or not a family member is in good health. In this case, as long as the family member in question is not already ill, injured, or in the hospital there are going to be options for covering cancellation if they should become unexpectedly ill or injured.