Homebrew Sanity Checks for 5e D&D

From the Referee's Guide for Lamentations of the Flame Princess by James Edward Raggi IV:

"...Referees should refrain from imposing any sort of fear or sanity rules upon Player Characters...and it is but a cheap effect to try to simulate fear by rolling a die and saying, "You're scared stiff!"... In a game where character death and/or failure are forever possible, then players will respect things that are supposed to be fearsome within the game. They won’t need to be poked with any rule, because they will know that if their characters act rashly or nonchalantly towards the supernatural, the supernatural will kill them."

    Much of modern media makes the fantastic and the horrifying mundane. If your RPG system is such that a Game Master cannot threaten their players with a knife because they're not scared of d4 damage, then you're playing an RPG that has trivialized knife wounds. A game like D&D 5e is not the system for horror. 

The Mechanic:

    If you really want to make a fear mechanic for D&D 5e, then let the Wisdom score represent the sanity stat. On a failed Sanity Save, players take 1d4 Wisdom damage. If a character's Wisdom score is reduced to 0, they become irreversibly insane and are retired. The mounting penalties to their Wisdom modifier for their divination spells, medicine, survival, animal handling, perception and insight checks represent the ever-increasing faltering of their skills due to their waning sanity. Characters can only recover lost Wisdom by resting in a place of safety such as traveler's inn in a well-protected city at a rate of 1 Wisdom point per night. The inn, lodge, or home they rest in must at minimum be Comfortable on the standard of living scale presented in Chapter 5 of the PHB.