Thank you very much for clarifying. First of all, I am sorry to hear about the issues brought up by this. It must be a frustrating situation to be going through.
As far as TUI are concerned, they would have no obligation to allow you to cancel without penalty, or waive any of the cancellation fees. Additionally, they would not have had a legal obligation to discuss the Zika virus before you booked and that is something you would have had to research yourself, before deciding on whether that destination is suitable for your travel plans.
Therefore, the only option would be the insurance which you had in place. The clause you highlighted may indeed help you, but do not be surprised if they try and find a way to avoid cover – insurers are notorious for often trying to find ways to avoid paying out, so as to minimise their liabilities and find loopholes to do so.
If that was to happen, do not despair – you can appeal and escalate it as far as possible with the insurer first, before looking at taking this to the Financial Ombudsman. I have personally had two separate insurance claims rejected before, after which I took the matter to the FO and won both, getting the pay-outs I was due at the start.