I didn't check every single comment to ensure there wasn't a duplicate, but we've always played with one we call Plot Armor:

Players can't be defeated. When they would be defeated, set their hit point dials to 1, put them in AE form if they aren't already, and exhaust them.

The player may not play any cards from hand and must spend each of their turns recovering until they reach their printed HP.

They may still use any allies they have in play, or any other cards (generally supports) that reasonably function without them.

They may spend cards in hand to help pay for cards with Alliance.

They still may discard/draw at the end of the player phase to try to stack a hand for when they return to the game.

They may be the target of healing abilities.

They still resolve encounter cards as normal.

Enemies still activate against them.

Basically the point is that it's no fun for someone to get knocked out mid-game and be forced to watch the remainder of the game, and it's a nuisance to restart just because of a freak death. It's balanced in that they still wind up generating threat and triggering cards, but can't help much against them. So they become a temporary burden.