Sacrificing a dungeon key does not let you continue if killed by the dungeon boss?

I was asked to post this here. The original threat is in “General.”

After a several-month break, I decided to play a few dungeons while waiting for 1.3. When fighting the Level 4 boss of the Soul Bastion, I died and a prompt asked me if I wanted to spend a key to respawn. Choosing the option sent me to town, instead and an extra key was consumed. I tried this a few more time to make sure and the same happens.

Does this work as intended?