It gives you motive to NOT get killed, simple as that. If you can just go in, and get mulched without giving a damn because there are no repercussions, then the mechanic isn't balanced.

I for one am part of the minority that is in favor of slightly more skill loss per level, in exchange you can at least keep part of your damn inventory. Having to sprint back to your corpse through hostile territory is tedious and annoying, and generally just encourages the wrong behavior.