"AND DO NOT SAY OF THOSE WHO ARE SLAIN IN THE WAY OF ALLAH THAT THEY ARE DEAD. INSTEAD, THEY ARE ALIVE, BUT YOU DO NOT PERCEIVE."

وَلَا تَقُولُواْ لِمَن يُقۡتَلُ فِى سَبِيلِ ٱللَّهِ أَمۡوَٲتُۢ‌ۚ بَلۡ أَحۡيَآءٌ۬ وَلَـٰكِن لَّا تَشۡعُرُونَ (سورة البقرة:۱۵۴)

According to Islamic traditions the dead person is given some kind of a "new life" in Barzakh which develops in him a sensitivity to punishment and reward. Regardless of whether one is a believer or a non-believer, virtuous or a sinner, this taste of life-in-Barzakh is given to everybody. However, the life there has many categories: one of them is for the general lot, while some others are for prophets and virtuous people. The later ones vary in their degree of excellence. 

Moulana Ashraf Ali Thanvi RE has written that, "One who dies in the cause of Allah is a Shaheed (Martyr) and , although, it is correct and even allowed to call him dead, yet we are forbidden to regard their deathlike ordinary deaths. For, though, life in Barzakh is given to everybody which gives him perception of reward and punishment but Shaheed's life in Barzakh is qualitatively different from the one given to other persons. The distinction a Shaheed has over others in Barzakh is that in effect, for the fullness and sensitivity of life, his perception is keener and deeper.

From Ma'ariful Quran, Interpretation of Surah Al-Baqarah, by Mufti Muhammad Shafi RE