Adding to that: I understand it would be work, but perhaps the corpse would be a retrievable item left on the battlefield (only available to the owning player) and death as well as life magic could have some spell variant that revives the corpse and allows the champion to be used again in some form.

Killing a Champion permanently means losing spells permanently. The AI just needs to learn that at a certain point a hero should be retired to a castle. That is what humans do afterall. Personally I think there are too few heroes in .86. I have double the heroes in my games and the AI is finally able to use magic. But they still don't build a good stack of doom. 

Oh, and there is a potion to remove all injuries from quests. If .86 had quests this would be less of a problem.

Yea, having a champ retire to a city after achieving X level of ineffectiveness might be best.

Alternatively they could be partitioned off to questing instead of warfare ... but assuming that all quests disappear after any attempt (not just after success) ... and always the first attempt at that ... this could cause a further problem with lack of quests (weak champ pops all the quests and loses each time).

Regardless, the AI should not be using severely weakened champions on the campaign trail.

Equally, once an AI's economy is robust enough they should begin to build stronger, more elite (and costly) units, and phase out the older models ... by disbanding weak/inefficient troops on the very turn that the powerful troop is either built or reaches the front line.