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This poll is assuming your entire squad dies, and there is no one to revive.
Regarding Option #3; You would have to restart your mission, and reclaim the items in the spot you die.
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Depends on the game feel they are shooting for. Honestly I don't think you should lose everything in your inventory, that's way too hardcore. And I feel there are more creative ways of punishing you for Death than simply losing currency. I liked how Dark Souls challenged you to make it back to where you died in order to reclaim your souls, perhaps something like that?