ExploderWizard
Hero
A major facet of the fear undead can cause is the prospect that you might become one of them. Skeletons and zombies may not be the most daunting combatants, but fall to them and some powerful necromancer just around the corner could turn you into another shuffling moaner. More powerful undead can turn you into one of them by draining your life.
If undead are just strewn around like any old monster, they won't be as scary as they should be. Instead, the presence of undead should mean trouble. There may be a formidable master around, or a family concealing their activities. A group of wraiths could stalk a city at night, murdering people in their sleep. Locking their inn room door won't do PCs much good against a foe that can travel through walls. Seeing how former compatriots are now hideous undead is an old trick, but can still be effective.
Descriptions of undead monsters in 1e described them as being unnatural entities that would terrify normal animals, who were responding to creatures who had no place in the world. A pack of ghouls might not be an overwhelming combat encounter for a group of PCs, but what if they were riding on horses near a cliff when the ghouls appeared? Each PC may need to make a Dexterity[Land Mounts] check or have their frightened horse panic and run - potentially right off the edge. If a tavern dog suddenly starts barking and howling at the top of the stairs that go down into the cellar, the regulars are liable to get nervous. Making undead scary often takes a bit of scene-setting and atmosphere, rather than plonking them down and hoping their combat abilities do the job.
This really brings it home. One thing terrifying about a shuffling zombie when you stop and think about it, is that it could easily be YOU. It is also a mobile, hostile reminder of your own mortality and your inevitable fate at some point. The terror felt at possible ending up like them is far greater than the fear of mere death.