A semiconductor wafer has a plurality of semiconductor die with contact pads for electrical interconnect. An insulating layer is formed over the semiconductor wafer. A bump structure is formed over the contact pads. The bump structure has a buffer layer formed over the insulating layer and contact pad. A portion of the buffer layer is removed to expose the contact pad and an outer portion of the insulating layer. A UBM layer is formed over the buffer layer and contact pad. The UBM layer follows a contour of the buffer layer and contact pad. A ring-shaped conductive pillar is formed over the UBM layer using a patterned photoresist layer filled with electrically conductive material. A conductive barrier layer is formed over the ring-shaped conductive pillar. A bump is formed over the conductive barrier layer. The buffer layer reduces thermal and mechanical stress on the bump and contact pad.