Yes, if someone dies, or even if someone loses their private keys to their wallet - the bitcoins in that particular wallet are lost forever (basically). In the future we will probably see more and more people inherit bitcoins, so that they aren't lost. If someone with 1 million bitcoins dies and the private keys are unknown - then yes, those bitcoin are pretty much stuck where they are.

It's unfortunate, but people have suggested for inactive bitcoin to be able to be re-mined and other such ways to make sure amounts of bitcoin aren't lost forever. There are of course issues with this to do with security and otherwise so we will probably see the status quo for this scenario to stay the same for a while.