I've always wanted death in my game to make sense so as of now I've very loosely got a story that resolves around the players being the "Band of Immortals" impacting the world. Since my end goal is a MMO and where combat and death are needed, players dieing and coming back to life was something I had to make sense of.

To do this I decided to make an RvR (realm vs. realm) meta-game of combat for the after life. When a player initially dies their physical body will drop to the ground and their spirit will rise to stand over it in the astral plane. Now for some time their astral presence can stand over their bodies and wait for a 'priest' type character to resurrect them or they can cut the connection to their body by simply walking a short distance away from it.

Players have two choices when breaking the connection.

1) They can choose a Soul Well to respawn at, which is like a warp point which must be discovered in the physical realm and linked too before hand

Or

2) Return to the afterlife. From here it depends on the player’s karma as to which faction they side with.

I've decided to go with a Good, Bad and Neutral option. One thing that's a must though is that all sides must be equal. You can't punish someone for being in "Hell" with XP/Skill or whatever loss without the other sides having negative effects too. I'm talking from a balance perspective but if it’s like a single player role-playing game then you'll have more freedom.