I also didn't know there's encryption option within Google's password manager.
While it might help you protect your password again hacker, but i doubt your password is safe against Google itself.
I'm also thinking the same way. I never saved my passwords on google at all. It is because google have many problems that's why I don't save my passwords in google. Just like their playstore letting those scammers to add their scam apps in there play store which is not good crypto enthusiast. Even though it's encrypted, I still don't want to save my password.