A semiconductor device has a substrate and an electrical component disposed over a surface of the substrate. An antenna interposer is disposed over the substrate. A first encapsulant is deposited around the antenna interposer. The first encapsulant has a high dielectric constant. The antenna interposer has a conductive layer operating as an antenna and an insulating layer having a low dielectric constant less than the high dielectric constant of the first encapsulant. The antenna interposer is made from an antenna substrate having a plurality of antenna interposers. Bumps are formed over the antenna substrate and the antenna substrate is singulated to make the plurality of antenna interposers. A second encapsulant is deposited over the electrical component. The second encapsulant has a low dielectric constant less than the high dielectric constant of the first encapsulant. A shielding layer is disposed over the second encapsulant.