It's really necessary to own an extra disk for backup purposes. Each piece of your own data must be on an external disk, a simple electrical outage while your hard disk head is over the FAT area could destroy your whole disk data.
I had to run out to Walmart to buy an external hard drive to back up my data
And, yes a physical error on your hard drive can raise problems. Fortunately, you have so many things on your computer that not necessarily a vital info will fall oh the faulty sector. But this is an indication that your hard disk has to be put under strict observation and you should keep backing up your personal data.
However, there is no indication that a system file will necessarily be written on a faulty sector, so you could also happen to keep using your computer during several years before another system failure.