The question:
"When should I encrypt my Time Machine backup drive?"
My answer (and my opinion only):
You shouldn't.
Why not?
Because "a backup" is something you reach for "in a moment of need".
One usually has lost something and needs to "get it back".
The more barriers you put up to accessing that information, the harder it becomes to get back.
And I've read too many posts here from folks who "reached for their backup", and found that they COULDN'T access the data on it.
If you have data that is "that sensitive" on the backup drive, leave the drive "in the clear" but lock it into a safe or store it in a hidden place.
Again, my opinion only.