Some people like to roll up new characters and try out their new powers immediately. Some players like to make connections; collect NPC friends and contacts, tie themselves to the history and legends of the world, make themselves part of the local NPC community.
A death will disrupt the play for the first kind of player very little, even invigorate it, while it will disturb the second one greatly; you don't roll upp new emotional connections as easily as you roll up new stats and powers.
So, in order to provide the best experience, general rule 1A applies: KNOW YOUR PLAYERS!
My personal experience (as usual, yours may vary):
I used to be part of a major campaign (20+ years in the making, dozens of regular players, 8-12h play/week...). That campaign applied a death penalty; die and your next character came back weaker. During my play I saw at least half dozen spectacular death spirals, as these new weaker characters of course tended to die much easier, and then the player got an even weaker character, which died even easier, and so on...
What happened at first was that those trapped in such a spiral first stopped caring about NPCs and plot hooks, seldom bothering to interact with the world. Then, after a few more deaths, they started doing stupid things just out of "what the heck, things cannot get any worse" - insulting visiting enemy generals, jumping off cliffs to measure their height by HP lost, going left in the dungeon when the rest of the party went right, stagediving into zombie hordes, and so on; finally, when even those characters predictably died, the players stopped showing up. In the end, I also ended up on that fast downward spiral, but luckily I got rescued to another campaign where I got to make characers I liked, and who had staying power (fate points!) so that I could afford to invest emotionally in them again, and stop doing stupid things.
Once, before modern medicine, the majority of infants died during their first year. in many communities people did not baptize their children until that year had passed; they did not want to make the emotional investment of giving a name until it had a more reasonable chance of survival... The analogy may be a little extreme, but I still think it apt. Too much random death, and you simply stop caring about your characters.