What would be a good alternative to say to Protestants and other non-Catholics?
I actually don't get into the eternal part of it. I just say "I am deeply sorry for your loss" or something like that.
I would, however, like to clarify something I said above. When I said
"we should avoid giving non-Catholics the impression that we are pleased with how that soul lived on this side of eternity", I was referring to what religion (if any) they professed,
not to their integrity or moral character. Many non-Catholics are thoroughly decent people --- of course, they play with a thinner rule book, and if Satan has greater power over them because they are on their way to hell anyway, perhaps he doesn't have to tempt them to commit as many sins (I had a non-Catholic relative who admitted this much about himself, I didn't ask him, he brought it up himself!) --- in other words, it would be easier to live by the Seven Commandments than the Ten Commandments --- and their integrity, at least seen through secular eyes, is beyond reproach. Even the Freemasons thrive on exalting honor, decency, and lives of service to their fellow man.