Yup, I'm with Col. A car is defined on what you need it for and what you can do with it, so if you're only commuting then a 1L Fiesta will do; If you're a horse vet then you may well need a Disco to get to where you need to be.
The law does not state like for like replacement in the statute at all. If you choose to take a Ferrari as the offered loan car for a year when a Mondeo would do, expect to lose that one in court. This is why I will never use an AMC, as all the risk is on you. You pay your insurer a good amount every year, why would you not use them?