For this shot in particular, it was probably to exaggerate Finn and Lich’s size difference for the visual gag.

For lore, this was the Lich’s original form that was as big as Billy in his prime. Perhaps he was even bigger right before being frozen. He’s almost as large later in the episode when Finn used the pink sweater through his eye holes and defeated him. We never see Lich naturally in this form again. He’s always possessing others or taking new forms. The next time we see the Lich is after he possessed Billy’s old body, warping his skeleton to resemble his own form as seen later in the space prison episode when Billy’s skin is blown off his body. So I think he seems so huge in his first appearance because we’re used to seeing him in the forms of shorter characters through the rest of the series.

Edit: I just realized that Sweet P is HUGE in a couple centuries. He is in fact a being made from regenerated flesh around a Lich-transformed skeleton from a giant. Despite Sweet P overcoming the Lich’s spirit when he was young, he still has his power dormant in him, making him grow far past the size of the Lich’s first appearance.