From an old-school role playing perspective, this perk represents the godly warrior rallying by virtue of their faith. At the moment a being of lesser faith would fall, they are blessed with vigor and can fight on briefly, perhaps just enough for victory.
If I was designing this for my own game, I'd definitely allow health to increase slightly beyond what it was before the final blow fell. Otherwise it just feels like the final blow didn't even land at all. I'd want to make it a special moment with both audible and visual feedback so the player knows what just happened, and that all those temple tithes and temple quests just had a real impact in a moment of need.
But considering this is Daggerfall, it's probably just cancelling the final blow while smoking a cigarette and eating a croissant nearby, and feeling frankly annoyed we're even still alive.
Without anything better to go on, I reckon just have fun with it and do whatever you think is right.
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