Yes esp with cichlids and the higher aggression rates it is almost a necessity to have one. A 10g would work but if you have the room Id do a 20 or even a 29g, depending on the size of the fish you keep.
Yes, definitely a good idea to have a 2nd tank. Always a good idea to quarantine new fish for a few weeks before adding them to your main tank. Having a new fish bring some illness such as ich into your main tank, especially a large tank such as a 120, is a real PITA. Having to treat a large tank with meds can get expensive. I use a 20 long for my QT/hospital tank.
I have never set up an second tank just in case my fish get sick. My fish got sick with Ick about 6 weeks ago. It was the first time in about 10 years. You think I would have another tank sitting around that long just in case they get sick. It makes no sense to me. If your fish get sick with any regularity then you need to take a look at what you are doing.
Two options. You can keep a $10 10G in a closet just in case.
The alternative is if a fish DOES get sick, it is contagious and you can't or don't want to treat the whole tank...you would have to be comfortable with removing that fish and euthanizing since you have no treatment tank.
Me, I have the extra tank, but it always seems to be full so it does not feel like a waste. Sick fish, new fish being quarantined, fry, holding mom, victim fish recovering before being returned to the LFS. It's always something.
I agree your fish shouldnt be getting sick, but esp if yyou have a 200g n end up nededing to treat with some meds can be VERY pricey. So id think having a a small tank sitting in the garage or closet with a cycled sponge in your tank will pay for itself several times over with just one treatment. Who care if its used and scratched or whatnot.
I always have a spare tank, heater and filter- for raising fry, for healing fish, and especially quarantine.
The best reason to have a second tank is to protect the investment of your first tank. It can take six months to a year to build a stable community of fish, and it's horrible to watch it implode because you didn't bother to quarantine new fish.
What size? Depends on the fish you intend to keep. If any of your current fish will grow to be ~5 inches or more, then a 20g is the minimum. If you are thinking of buying a large breeding group to add to the big tank, their QT will probably need to be 40gal.
Because I have 8-10 tanks running at any given time, I can always move fish around to accommodate new/sick/bullied fish, but I still have a couple 10g tanks in a closet, and 40g in the attic. If I had to choose one spare tank, it'd probably be a standard 20g, simply because it's easy to find space to set it up on short notice and large enough for most fish for short term keeping.