I'm taking a leap and assuming resurrection isn't a near impossibility as some campaigns tend to opt to do to give them a more 'hard' edge.
How do you handle it?
Resurrection is possible, although intercession by a cleric in order to facilitate it is morally questionable. Ripping a soul from the bosom of the deity, and forcing it back into a mortal body to suffer again on the prime plane is a necromantic act, and is
not generally considered a good act.
Of course, circumstances exist where it is warranted, and it has happened historically. Since this campaign began, however, it hasn't occurred. In addition, "Raise Dead" is not a spell that I allow in the game, so this further limits it to very high level divine casters - of whom, currently only one exists.
Ironically, it is Melion, the Inquisitor General.
As far as the risk: reward balance goes, I'm not sure. I tend to play it by ear as a rule. I don't bend the rules grossly in favour of the players, and the possibility of death is real. But combat is actually quite infrequent in the game, and due to the low chance of 'coming back' if they die, I tend to drop the CRs of encounters accordingly - a CR11 encounter for a 17th level character is actually quite dangerous, if he knows that if he bungles it, it's bye-bye for good.
Reincarnation is another matter entirely. I've got no problems with that, and maybe that acts as a safety cushion in the players' minds to a certain extent.
Is 'Reincarnation' followed by 'Polymorph Other' (to a human) an allowable way of circumventing this problem? Mostin's player asked me the other day - it would obviously require the combined resources of a Druid and a Wizard. I haven't made up my mind yet.