"Of all" refers to a noun's placement in context of its similar counterparts. In this case, "of all the ways to lose a person" emphasizes how in context of the other ways to lose people, death is the kindest out of all of them. You could also see this structure as "(out) of all the ways..."

Essentially, it means, “as one of the possible ways that you could lose someone…”

The sentence cannot be made more simple than it already is. You can say it in other "ways", but they are all more difficult than the original: "Among all the possible manners in which a person might vanish from your life, death is the most kind."