A semiconductor device has a semiconductor wafer with an interconnect structure formed over a first surface of the wafer. A trench is formed in a non-active area of the semiconductor wafer from the first surface partially through the semiconductor wafer. A protective coating is formed over the first surface and into the trench. A lamination tape is applied over the protective coating. A portion of a second surface of the semiconductor wafer is removed by backgrinding or wafer thinning to expose the protecting coating in the trench. A die attach film is applied over the second surface of the semiconductor wafer. A cut or modified region is formed in the die attach film under the trench using a laser. The semiconductor wafer is expanded to separate the cut or modified region of the die attach film and singulate the semiconductor wafer.