Do you want a penalty and if yes what kind of penalty do you wish for? And what exactly is the point in having a penalty?

When I die I know I failed. I dont need the game explain to me that I failed (I am smart enough to understand that myself.....)  
I mean some people like to lose EXP/money/items or even lose their character when they die in games but for me being forced to do stuff again because  I have to load from my last savegame/checkpoint which is from 10-30 mins ago is more than enough punishment. I hate doing the same stuff again (especially when its games where you have to watch cutscenes you cant skip)

Yes, I want a penalty, the usual one for JRPGs (back to the last save point with your progress since then being removed). I don't like an auto-save feature in a game like this. There should be save points, because it makes the player assume responsibility for the game they are playing. The point of a penalty is said responsibility. Removing it means that you are treated like a young child that needs others (the developers) to handle things for them (in this case, the auto-save). If you don't like losing, then try to avoid losing. It's not like the average JRPG is particularly punishing anyway, the norm is to put a save point right before bosses; and bosses are the part of the game where you are most likely to lose.

Removing the penalty (or drastically reducing it) opens up the door for what I call a "sacrifice kill". You don't like how a particular situation is playing out, so you just kill yourself because you are actually gaining that way (usually time). In Child of Light such a situation would be a surprise encounter from a regular enemy on expert; the same system applied to another JRPG (Final Fantasy) would render the much dreaded Marlboros completely harmless. Essentially, it removes a lot of tension from the game. There's a huge difference between being caught off guard and having to turn it around somehow, and being caught off guard and just letting it happen because it doesn't matter anyway. Bravely Default makes the same mistake by allowing the player to adjust the encounter rate at any time (including no encounters at all). What could be a dangerous dungeon becomes a walk from treasure chest to treasure chest.

As for naming difficulties, the simplest solution is to stick to calling it "normal". That word refers to the developers' standard difficulty and the intended way of play, thus it's perfectly okay to be called "normal".

I shouldn't have that choice to begin with. Although I usually decide to continue the fight.

You make a good point regarding auto-saves, but it's rarely applied that way.