Well, here is my opinion on the matter as a woman who can understand maybe where your wife is coming from (and as a married person who did a lot of couple's counseling to go through issues of inscurity)... She is probably kind of embarrassed about the fling and maybe even regrets it. She probably does want a familial relationship with this cousin and hates to think that her allowing things to go too far will forever create tension. I totally get that. She might not feel this way, I'm just offering it up as a possibility based on how I might feel in a similar situation.

What your wife really needs to do is acknowledge those feelings if she has them or talk about it with you. I think what you're hoping to see is a sign that she has absolutely no feelings for that cousin at all. It would make you feel like there are no sexual rivals that you have to beat out for her affections. You might be feeling a little insecure just because you might be perceiving him as a sort of rival in a way. I think you should acknowledge those feelings too.

It would mean a lot to state her case that there are no feelings for this cousin if she DOES exclude him. He is not a core family member, therefore, dispensible. I know that sounds kind of mean, but it is what it is. He just isn't all that important in any scheme of things and it would be perfectly fine for him to be excluded from events hosted by your household. Your wife does need to understand that sex DID happen and that if she wants you to feel safe and secure in the relationship, she needs to make a concession in this case. It would be very different if she just had a male friend who was married and there had never any kind of romantic or sexual relationship.

My husband's best friend is a female who is married. They had the same major in college, worked at the same place previously, but there was never any kind of attraction there and I believe it. They never went on a date, they never spent the night together, and almost all events included either me and/or whoever she was dating. Though I was a little insecure about his previous girlfriend, because those boundaries were there with his female friend, I never felt insecure about her.

So, I think a lot of this insecurity can be resolved through just establishing some kind of boundary and open dialogue. Your wife ignoring it isn't going to make your feelings just disappear. If anything, her ignoring them will only fuel that fear that the cousin really IS your rival. She needs to be just a little more proactive.