Equity is the part of something you own that you've actually paid for. In a house, it's the home's market value minus what you still owe. In a cash value policy, it's the cash value, which means the money inside the policy that you control while you're alive. I walked through the comparison in a video comparing cash value life insurance to real estate, and four parts of it match closely.
First, you build it by paying. Every mortgage payment adds to your equity. In a policy built for cash value, the money you put in above the base premium is your equity. The base premium is the required amount that sets the commission and the size of the base death benefit. A design with a ratio of about 10 to 1 means a $15,000 base premium leaves room for up to $150,000 of total funding in a year. In the designs I aim for, 80% to 85% of what you put in is reachable as equity from the first day, though that depends on the policy and the company.
Second, it grows. Homes tend to rise in value over time, but not on a schedule you can count on. A whole life policy has a minimum growth rate written into the contract, and dividends can add to it. Dividends aren't guaranteed. An IUL, which means indexed universal life, ties growth to a stock index with a floor, which means a down year credits zero instead of a loss. Both types charge for the insurance inside, and those charges come out of the growth.
Third, you can borrow against it without selling it. A home equity line of credit lets you use your house's equity while you keep living in it. A policy loan lets you use your cash value while the policy stays in force. Borrowed money isn't income, so neither one is taxed when you take it. Taking money out of a policy as a withdrawal is different, because that's closer to selling. Withdrawals above what you've paid in can be taxed, and I'm a licensed broker, not a CPA, so check your own case with one.
Fourth, you own it. A cash value policy is property, which means you can keep it, borrow against it, or sell it. Selling a policy is its own topic, and it has tax rules.
Here's where it doesn't match. A bank decides whether you get a home equity line of credit. It checks your income and credit, it may ask what the money is for, and it can freeze or cut your line of credit when the economy turns. A policy loan needs no credit check and no reason, because the insurance company knows any unpaid loan will come out of the death benefit. Keep in mind the loan still charges interest, and unpaid interest gets added to the balance. While a loan is outstanding it reduces both the cash value and the death benefit.
The same difference shows up when you die. Someone who inherits a house also inherits its mortgage. Someone who inherits a policy's death benefit gets the full amount minus any loan balance, and the death benefit is usually much larger than the cash value was.
Pull your latest policy statement, find the cash value and the amount you can borrow, and write those two numbers beside the equity figure on your most recent mortgage statement.