A semiconductor device has a first conductive layer formed over a sacrificial substrate. A first integrated passive device (IPD) is formed in a first region over the first conductive layer. A conductive pillar is formed over the first conductive layer. A high-resistivity encapsulant greater than 1.0 kohm-cm is formed over the first IPD to a top surface of the conductive pillar. A second IPD is formed over the encapsulant. The first encapsulant has a thickness of at least 50 micrometers to vertically separate the first and second IPDs. An insulating layer is formed over the second IPD. The sacrificial substrate is removed and a second semiconductor die is disposed on the first conductive layer. A first semiconductor die is formed in a second region over the substrate. A second encapsulant is formed over the second semiconductor die and a thermally conductive layer is formed over the second encapsulant.