A semiconductor device has a semiconductor die with a first conductive layer formed over the semiconductor die. A first insulating layer is formed over the semiconductor die with a first opening in the first insulating layer disposed over the first conductive layer. A second conductive layer is formed over the first insulating layer and into the first opening over the first conductive layer. An interconnect structure is formed over the first and second conductive layers within openings of a second insulating layer. The second insulating layer is removed. The interconnect structure can be a conductive pillar or conductive pad. A bump material can be formed over the conductive pillar. A protective coating is formed over the conductive pillar or pad to a thickness less than one micrometer to reduce oxidation. The protective coating is formed by immersing the conductive pillar or pad into the bath containing tin or indium.