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The solution here would prevent you losing everything. You'd still lose the social development of your character in terms of interaction with other players - and therefore, death would still be a serious issue. However you would at least salvage some of your work, so players wouldn't feel as if they'd lost everything that they'd spent the last few hundred hours working on. Furthermore, even from a social point of view, as the son or daughter of your previous character you'd have good grounds to retain relationships with those you knew in your previous "life". From a game design point of view, it would encourage players not to simply quit for good when they die.
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