(...)
Once you build this connection - once you have a player who has stopped thinking about the fact that they're sitting on a couch and holding a controller and is instead feeling as if they actually were inhabiting some baleful ruin, armed only with a bit of pipe and a few shreds of courage - then you need to maintain it as long as possible. You want them to think and act as if they were really there, and so the last thing you want to do as a game designer is kill that mood by killing the main character. Paradoxically, dying makes the game less scary.
I know this sounds odd, and goes against the classic survival-horror formula of springing "gotcha" deaths on the player every ten steps and putting save points ludicrously far apart. But consider these two types of fear:
1) Oh no! I'm going to DIE.
2) Oh no. I'm going to lose the game.
(...)
Creating real fear requires immersion, and sending the player back to the loading screen kills that. A second ago they were afraid for their lives. Now they remember they're in their living room, it's all just a game, and the danger was never real to begin with. You can threaten them all you like but once you actually kill the character, the player will remember you're all bark and no bite because you can't really hurt them. The worst you can do is stop them from progressing in the game, which just isn't all that terrifying.