An instructor who never gets dirty and avoids fighting you because he's afraid to hurt you is useless. The fact is many instructors are often just scared of being humiliated in front of a full class of "paying" students. Any good instructor knows, they can always learn more, even from a student. A truly skilled martial artist never stands in front of another man expecting to learn nothing. "The investment in loss," (as Chen Man Ching speaks of) means that a loss is not a failure if you walk away from it with something besides the bruises. Without loss there are no skills, no learning, and no advancement.
Instructors and students should all work towards that confidence in our abilities, to train like we fight and fight like we train. In the streets, there will be no one to call the match or stop the time. Do everything you can to prepare yourself for the potential attack of a madman. Devise worst-case scenarios and try to recreate them as closely as you can in a controlled environment. Feel the sudden rush of adrenaline when you fear being hurt, and feel the sudden drop in strength and speed when you deplete your adrenaline stores. Experience what it's like to be disoriented by single or multiple blows. Only when you're familiar with these sensations can you recognize them and maintain some semblance of focus.
Remember this, if your Sifu's only source of income comes from a handful of students be careful. The classes are softer in fear of losing the money students.