Q: Do I have to back up photos and contacts before updating I phone?

You should as a precaution.  Import your photos to your computer (http://support.apple.com/kb/HT4083) and back up your contacts separately.  (If you don't have a supported program such as Outlook or Mac Address Book/Contacts there are apps that will do this, like My Contacts Backup.)  Als be sure to back up your phone first.

Photos/videos in the Camera Roll can and should be imported by your computer as with any other digital camera.

http://support.apple.com/kb/HT4083?viewlocale=en_US&locale=en_US

Contacts are designed to be synced with a supported address book app on your computer where contacts should be with or without an iPhone or any cell phone which can be lost or stolen or damaged beyond repair from being accessible.

Of course not. You don't have to ever backup. However, if you don't backup, I guarantee that you will eventually lose ALL of your data...not some, ALL.