Is this a scam?

Yes. This is a phishing scam.

Red flags in the message:

• The sender is not a Microsoft domain.
• The message uses urgency and threats such as mailbox deactivation and permanent data deletion.
• It asks for action through a third-party link instead of a Microsoft account or support channel.
• Microsoft account emails that are legitimate for account notifications use @accountprotection.microsoft.com.
• Microsoft support emails use domains such as microsoft.com, microsoftsupport.com, mail.support.microsoft.com, office365support.com, or techsupport.microsoft.com.

What to do:

1. Do not click the link, reply, or open attachments.
2. Report it as phishing in Outlook, then delete it.
3. If a link was already clicked or information was entered, go directly to the Microsoft account Security page, change the password, review recent activity, and enable two-step verification.
4. If needed, inspect the message headers and verify the real sender domain.

References:

• Can I trust email from the Microsoft account team? | Microsoft Support
• How to determine if an email from Microsoft support is genuine
• I received an email about updating your Terms of Service, Security Policy, and Privacy Policy. - Microsoft Q&A
• Is this legit email also? - Microsoft Q&A
• Possible Email Scam - Microsoft Q&A
• I keep getting emails from Microsoft telling me I need to update/ accept your terms or lose my ability to use my account. Is this a scam? - Microsoft Q&A