Why a separate DAC?

Separate DAC is one practical way to tweak the sound if needed or desired. ITs that simple. If built in DAC already in use sounds good enough, then no need.

If you like the amazing sound of Arcam AVR. Keep it and enjoy. Separate DAC only enables you to change the sound to music the way it was intended to be heard:

To answer the question a player is a mechanical transport and a DAC in one unit. If either half breaks, and cannot be repaired, or is not worth repairing, the other half goes out with it. Mechanical devices being, very broadly, more subject to failure than electrical ones.

The other half of the story is that there is a perception that DAC technology is less mature than say LP replay, and some believe that DACs can easily be bettered, at any given price point, in just a few years. Not so transports. So, if you subscribe to this theory, the easiest way to upgrade your older player is by adding a new DAC that has newer/revised technology, or prettier blue lights.

If you went up a few levels in price, your player could, most likey, be bettered sonically by either a better player, or by adding a DAC to your player. After all, if spending more money did not, generally, buy better sound, why would there be a robust market in more expensive goods?

I purchased separate DAC-pre that has multiple digital inputs as one of the reason. It's all I actually need ONE input for analogue and rest of inputs are digital.
Another reason you can find cheap player with good transport and digital out, mate it with good dac and save lots $.

The extent that you would benefit from an external DAC would depend on use of system for music vs. video and what sources you listen to, CD vs. DVD/BD vs. computer.