diff --git a/ChangeLog b/ChangeLog
index 5189034a26..76beb4ba80 100644
--- a/ChangeLog
+++ b/ChangeLog
@@ -22,6 +22,14 @@ Release date: TBA
 
   Close #3141
 
+* Fix ``utils.is_error`` to account for functions returning early.
+
+  This fixes a false negative with ``unused-variable`` which was no longer triggered
+  when a function raised an exception as the last instruction, but the body of the function
+  still had unused variables.
+
+  Close #3028
+
 
 What's New in Pylint 2.4.1?
 ===========================
diff --git a/pylint/checkers/utils.py b/pylint/checkers/utils.py
index def655769d..22c44836a3 100644
--- a/pylint/checkers/utils.py
+++ b/pylint/checkers/utils.py
@@ -266,10 +266,14 @@ def is_super(node: astroid.node_classes.NodeNG) -> bool:
 
 def is_error(node: astroid.node_classes.NodeNG) -> bool:
     """return true if the function does nothing but raising an exception"""
-    for child_node in node.get_children():
+    raises = False
+    returns = False
+    for child_node in node.nodes_of_class((astroid.Raise, astroid.Return)):
         if isinstance(child_node, astroid.Raise):
-            return True
-    return False
+            raises = True
+        if isinstance(child_node, astroid.Return):
+            returns = True
+    return raises and not returns
 
 
 builtins = builtins.__dict__.copy()  # type: ignore
diff --git a/tests/functional/u/unused_variable.py b/tests/functional/u/unused_variable.py
index cb5215d99e..2d2c540b9e 100644
--- a/tests/functional/u/unused_variable.py
+++ b/tests/functional/u/unused_variable.py
@@ -58,3 +58,10 @@ def unused_import_from():
 def unused_import_in_function(value):
     from six import PY2, text_type # [unused-import]
     return value.encode("utf-8") if PY2 else value
+
+
+def hello(arg):
+    my_var = 'something' # [unused-variable]
+    if arg:
+        return True
+    raise Exception
diff --git a/tests/functional/u/unused_variable.txt b/tests/functional/u/unused_variable.txt
index e9f7ef0220..635324529c 100644
--- a/tests/functional/u/unused_variable.txt
+++ b/tests/functional/u/unused_variable.txt
@@ -11,3 +11,4 @@ unused-variable:46:locals_does_not_account_for_subscopes:Unused variable 'value'
 unused-import:54:unused_import_from:Unused wraps imported from functools as abc
 unused-import:55:unused_import_from:Unused namedtuple imported from collections
 unused-import:59:unused_import_in_function:Unused text_type imported from six
+unused-variable:64:hello:Unused variable 'my_var'