Most religions have a hell, which seems to be rather penalizing.
Note that I said 'reality', not 'unproveable-cult-indoctrinated-reality'. :)
But that also generates ideas for dealing with player-character death. If the player died well (not due to a stupid or evil action), then reward the player with a trip to digital-purgatory, treated as a side-adventure with some reasonably attainable reward. A bad/stupid/evil death also gets a trip to digital-purgatory as a side adventure and needs an attainable goal performed in order to 'return to life'. If the goal is distasteful enough (cleaning out dragon-pens, or washing the feet of a giant), the player will hopefully learn to avoid getting into that situation to begin with. Then it can be treated as a 'learning experience' instead of an outright penalty.
Well, maybe not you specifically, but people in this thread.