I would prefer the 2nd option. with a dialog like âHe is too important for meâ âHe wouldnât worth the priceâ etcâŠ
another option could be that, if you kill some very powerfull NPC, you would be chased by a lot of other NPC (gard, villagers, etcâŠ) with no other option but to try survive (which should be somehow impossible). In other word, you will be publicly linched to death.
But it depend of NPC. For example, the girl who wake up us at the beguining of the story, if this girl is important for the narration, you should have a stop like âItâs my sister/she save me, I canât do thatâ after all, we donât create our character and much of his bond. For others (may be, at one time, the weaponsmith is crucial for the main quest) do the character impossible to kill discretly/with no witness). In that situation, the caracter would be named as a a murder, and would be chased, and avoid by all the population. With no way to came back. And no way to do anithing else thant fleeing, or being chased, arrested, and hang on a proper place.