Just a small update. I went with USAA and rented through Budget. It really seems to depend on the time and location as to whether the deal is better or worse. We're on Oahu and the rental price for my full size car through Budget was half the cost of Enterprise who was the second cheapest option. (Even with USAA) Tomorrow, on Maui, we're only saving $30 through Budget on our rental car but a savings is a savings.
As expected, the young driver fee was waived and my father-in-law was added as a second driver for free no questions asked. They did however request my USAA membership ID. I pulled out the pages I printed from both mine and my father-in-laws profile page which displayed our personal information and USAA membership number. Worked perfect. My assumption now, as to answer my original question, is that any USAA member can be added and that "family" is referring to other USAA members. I'll post another update after my experience with Budget again tomorrow when we arrive in Maui.
It's worth noting that USAA also offers some liability coverage but my car insurance covers me anyways.