I’m all for having a penalty for death in the game, makes playing feel like it’s not an empty exercise.
I’d encourage you to rethink it a bit though on the basis that it makes no sense that the items I am carrying but are not equipped suffer damage on death. Happy for the gear I am wearing/using to suffer but the rest of it?
Consider some form of other penalty like a short term XP debuff, TP cool down extended or some such instead?