If I use the wallet app for my license and let’s say I get pulled over. I have to unlock my phone and hand it over to the police for them to take back to their vehicle with them? I’m assuming that’s the way this would work.
Assumptions are likely wrong. The reports I've heard from the few states where one can use digital licenses already are that the officers are specifically forbidden from handling the phone, you hold it up for them to see the information, scan the QR code, and/or (presumably in the future) use an NFC reader to collect the information, and
they never touch it.
If one of them ever says, "I just need to take this back to my car for a moment (because reasons)", the correct answer is, "officer, you can look at it here, but I will
not surrender my phone to you." If the conversation continues, the next answers are, "I'm happy to wait here while you call another officer to bring a functioning scanner", and "can I get your name and badge number for my incident report and potential lawsuit?" If I was in a state that had digital drivers licenses and I was contemplating carrying one without my physical drivers license as a backup, I'd read the relevant laws very carefully beforehand.
The indications are that with Apple's implementation, you don't need to unlock your phone, and I
think you do need to authorize access
to the license (and just the license) with TouchID/FaceID.