This is absolutely a normal developmental stage your child is going through. At 5, death is a curiosity. Yes, she may be overhearing you speaking about someone who has died in hospice.
I found this information for you from http://www.hospicenet.org/html/understand.html
Three to Six Years
Child's Perception: Child thinks death is reversible; temporary, like going to sleep or when a parent goes to work; believes that people who die will come back
"Magical thinking"; believes their thoughts, actions, word caused the death; or can bring deceased back; death is punishment for bad behavior
Still greatly impacted by parent's emotional state
Has difficulty handling abstract concepts such as heaven
Regressive behaviors; bed wetting, security blanket, thumb sucking, etc.
Difficulty verbalizing therefore acts out feelings
Increased aggression - more irritable, aggressive play
Will ask the same questions repeatedly in efforts to begin making sense of loss
Only capable of showing sadness for short periods of time
Escapes into play
Somatic symptoms
Hungers for affection and physical contact, even from strangers
Connects events that don't belong connected
May exhibit little anxiety due to belief that deceased is coming back
Providing Support:
Keep normal routines and structure whenever possible
Provide opportunities to play, draw
Read books on death & loss with child
Help to verbalize feelings and fears
Help to identify feelings and reactions
Be honest and tell a child if you do not have an answer
Explain in specific, concrete language - not euphemisms; explain what has happened giving specific explanations about physical reality of death
Gently confront magical thinking
Make sure child does not feel responsible for the death
Be tolerant of regressive behaviors
Modeling healthy coping behaviors
Avoid clichés; "At least you have another brother", "You can always get a new pet"
Use specific, concrete words - not euphemisms; Avoid "Mommy has gone to sleep", "God has taken Grandpa"
When my daughter was 6, my husband died. She really did think she could jump off a bridge, or stab herself and die and that way she could go 'visit' daddy. She knew one had to die to go to that place called Heaven where daddy "lived'. It was a very scary time for me thinking she was suicidal at 6...when really she was just trying to figure it all out and wondering if she could just visit her daddy and then come home to mommy again.
L.