Hyperbackup choices - is it recommended to stay with "files and folders?"

I’ve been setting up my new NAS according to the helpful Youtube guides. However, the last backup video regarding Hyperbackup → external NAS is about 5 years old. I see there are 3 options now: “files and folders,” “entire system” and a LUN.

A downside I see to “Entire System” backup, is that Synology says “The backup data of the entire system can only be restored on the same model or its successor” which sounds like a disadvantage. Plus, “files and folders” backs up system configuration as well as applications if I choose to - so what would the advantage be of “entire system” backup?

Is it currently the best recommendation to use the “files and folders” option? Also I plan on having an external HDD to back up to as well - should I use the same backup option as well?

Also if I pick client side encryption during the backup process, does that mean I don’t have to separately encrypt the drive?