The AA told the family of a member who collapsed at the wheel that it could not recover his car because his death meant his membership had lapsed.
Lifelong AA member David Barker, 58, of Low Edges, Sheffield, died as he drove to a football match on 28 December.
When relatives went to move his car they found the battery was flat and called the AA, but were told they would have to take out a new policy.
The AA admitted it failed to show "the compassion and sensitivity" expected.
Mr Barker's brother-in-law, Leonard Douglas, said when he called the AA he was told he would have to renew Mr Barker's policy at a higher premium.
"We were in a situation where my brother-in-law had just died," he said.
"They wanted to up his premium and I said why do you want to up his premium, he's dead.
"We were devastated, he'd always been in the AA. I really don't think it was right for them to treat us that way."
AA Road Operations Director Steve Dewey said: "Our procedures allow for discretion to be used in sensitive situations such as this.
"Unfortunately, when dealing with thousands of calls each day human error occasionally happens, for which we apologise. We have addressed this matter with the member of staff concerned.
"We apologise unreservedly for the distress caused to Mr Barker's family at what was already an extremely difficult time.
"The AA was wrong to refuse service and did not show the compassion and sensitivity we expect in what was clearly an emotional situation."
He said the AA had contacted the family and apologised for the mistake and the distress it had caused.