Getting dead is something that can happen quite often (usually when exploring a new biome or forgetting to eat and getting unplanned damage) but you lose only 5% of your skills. All your stuff is dropped at your gravestone and you get a timed "no skill drain" effect where you won't lose more skill if you die multiple times trying to get your stuff back. The only way you can permanently loose stuff is if you fall over the very edge of the world (world is flat) or if your boat is destroyed in deep water (the nails sink).