Many people saying OP is retarded but with slight modifications this can be a great system.
1- Instead of deleting the character, mark him as "Killed" in DB and change login systems in source to doesn't allow to login in killed characters.
2- Make a option when you create your character if you want to play in regular difficult or "Hell" one
3- In "Hell" Mode, if you die once you'll lose your character. You can't trade to others but all monsters only drops items related to your class, and the exp/loot can be improved.
Also, make some requirements/rewards for playing in this mode. (something like this: you must have at least a character 200+ in regular difficult and if you reach 200+ in hell mode without being deleted you can get a full set in regular mode)
If you insert this in only one monster, it sucks. But if you make an entire world using this, It's awesome.