Jeepu - To drive in Spain, US citizens are usually required to have a valid passport and a US driver’s license. It is also recommended that you apply for an International Driving License (IDL) to be on a safe side.
US citizens who want to rent a car in Spain are required to apply for and get their IDL before going to Spain. Consider that international driving permit does not replace valid US state license. You should use it as a supplementary document.
Most personal policies for car insurance in the United States won't cover you in Europe, there are plenty of ways to get the coverage you need.
Most major credit card companies offer free insurance coverage for car rentals in Europe, with provisions for vehicular damage and towing, plus some other expenses. Seeking coverage through your credit card is usually the cheapest option for car insurance abroad, and often one of the simplest. You can either Book your car rental in advance or book at the hotel you will be staying in.