I think that the usual way to respawn is just fine, you die, and then you respawn in the center of the town, or your house (if you have one), loose all the money you were carrying unless you have saved it previously in the bank, same thing with the items, and what happens with the money or items lost, they become loot for the killer, in that way a really powerful cave of monsters can get a lot of treasures literally... dont you think?