You can do it the way you mention. But also, if you look at the die in their storefront, the image shows a dotted red line running across by the neckline.
Papertrey Ink - Shape Up Series Die Collection
If you place the fold of your paper in that area, it will cut the image and give you a fold at the top. Then you would cut a another single image and decorate it and attach it to the front. Clear as mud?
Here's the link where Nichole introduced the die, and she'll have examples and instructions.
{capture the moment}: Introducing Bundle of Love & Sweet Baby HTH