For the kids classes, we will sometimes devote an entire class session in teaching them to give and receive hard hits. We have them partnered, and one will stay in a defensive stance while the other kicks. We usually encourage those who hit weakly to increase their power. For head shots, we have the partner put their glove (which is heavily padded) against their helmet. Their partner then kicks them in the head. We've found that this has helped alot of the kids overcome their hard-contact fears.
For the adults, well, that is rarely ever an issue. When a student reaches a level high enough to spar, they also engage in street-fighting. In these cases, the level of contact is up the partnership. If someone gets punched in the head, and they think they can take a harder hit, they tell the partner to hit harder. If it's too hard, we ask them to lighten up on their contact (though that rarely ever happens.)