http://forums.kanoapps.com/showthread.php?p=13404#post13404 This needs to be looked into and fixed. The who basic idea of bounties is that you pay someone to kill a person. If the person commits suicide, then nobody claimed the bounty. Therefore the money should be returned to its rightful owner. Its really just common sense. If a person puts a bounty on someone in real life and they commit suicide, does the person's money disappear? No it does not, it stays with the rightful owner.
How about when someone is killed on the bounty they are unable to heal for a period of time, anywhere from 5-30mins without using god points. No XP loss but instead an inability to gain XP thru fighting without using valuable god points, and even 5 minutes down could be the equivalent of losing out on an entire level, especially before the 1850, 2500 and 3000 bumps. The time period could increase with higher level players being bountied as well. Say 5 mins for levels under 1850, then 10 for lv1850-2500. 15 for 2500-3000, and 30 for 3000 and above. That way you get to, as Eddie said, punish your foes with a hit, and it also makes there be a point for that 4 favor point healing button (come on now, as it stands that thing is pretty useless)