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Every website sits on some kind of server, be it a shared, virtual or dedicated server, there is always some physical device at the end where it is located. And like every physical thing, this can break down or become damaged in some way.
Most reputable web hosting companies will have disaster recovery plans in place, this will ensure their business can continue in case of damage or destruction of some, or even all their equipment. Most will co-host in a second location so as to limit damage from something such as a fire. These are extreme examples, the most likely things that may happen are malfunctioning hardware such as a hard drive failure.
It is important to know how this will impact your website, most hosting companies will automatically take backups of your site so that if anything like that takes place they can restore your site to their backed up copy. This is generally not an issue but care needs to be taken when you have a more dynamic site, a content management system or a site that is updated frequently. Imagine if you had spent several days reworking your site and then it has to be restored to a back up copy from last week - all of your hard work would be lost!
Another area where backups are essential is where files become corrupted. This can happen when the files are stored on a failing hard drive, or due to a virus. These kind of errors are harder to spot as they happen over a long period of time. This can mean that if you don't have a file and data backup system in place you can only go back to the last available backup, and the corruption may still exist at this point.
Taking regular backups is essential and most hosting companies will provide some kind of backup. Backups prices are reasonable and are usually set on how much space your files take up and how frequently you want a backup to be taken. Compare the price of this to how much it would cost to redo all of your site, it is easy to see that it is worth the extra expense.
Don't leave backups until it is too late, you will regret not taking them if a disaster does take place.