I voted option 3, because that's the way I want it as a player. If I'm dumb or unlucky, my character should bite it (if that's how the dice fall). I don't want to cheat death, or the rules.
However, in practice, I've hardly ever had a character die. Most of the GMs I've had went out of their ways to find reasons for my character to not die, or to come back relatively easily. While this is nice, it tends to make the sessions less risky. That's fine for some, but not what I prefer.