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Elderscale Wurm’s last ability doesn’t affect the loss or payment of life.

Elderscale Wurm’s last ability doesn’t prevent damage. It only changes the result of damage dealt to you. For example, a creature will lifelink that deals damage to you will still cause its controller to gain life, even if that damage would reduce your life total to less than 7.

If damage is dealt to you and Elderscale Wurm at the same time, and that damage is enough to destroy Elderscale Wurm and reduce your life total to 7 or less, Elderscale Wurm’s ability will still apply. For example, if you have 10 life and a spell deals 10 damage to you and 10 damage to Elderscale Wurm, you’ll end up at 7 life and Elderscale Wurm will be destroyed.

If you have less than 7 life, damage dealt to you reduces your life total as normal.

In a Commander game, combat damage you’re dealt by a commander is still tracked, even if it doesn’t change your life total.